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Cite as: [2015] EWCA Civ 186

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Neutral Citation Number: [2015] EWCA Civ 186
Case No: B2/2011/2199

Mrs Recorder McMullen

Royal Courts of Justice
Strand, London, WC2A 2LL
11th March 2015

B e f o r e :



Barry McWilliam
Judith McWilliam
- and -

Norton Finance (UK) Limited trading as Norton Finance in liquidation


(Transcript of the Handed Down Judgment of
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Andrew Clark (instructed by Miller Gardner Solicitors) for the Appellant
The Respondent did not appear and was not represented
Hearing date : 2 December 2014



Crown Copyright ©

    Lord Justice Tomlinson:

  1. This appeal raises the question whether a credit broker, Norton Finance UK Limited, "Norton", a member of the Finance Industry Standards Association, operating in the circumstances prevailing in 2006, owed to its consumer clients, Mr and Mrs McWilliam, "the Claimants", a fiduciary duty such that it is liable to account to its clients for commissions received without their informed consent.
  2. The Claimants were looking for a loan of about £25,000 in order to refinance existing debt of about £18,000, mostly incurred on credit cards, and to fund the building of a conservatory for their house, expected to cost about £7,000. In the event Norton arranged on their behalf a loan of £25,500 from Money Partners Limited, "Money Partners." The Claimants also instructed Norton to place payment protection insurance, "PPI." The premium for that was advised as £3,745, and was added to the loan. On top of that, as the Claimants understood, they were to pay to Norton a "broker fee" of £750 and a "completion fee" of £500, the recipient of which was unspecified. So the total amount advanced became £30,495. What is in issue is two further commissions which were paid to Norton out of the total amount advanced. I shall call these "the additional commissions."
  3. The first such commission, £2,675, was paid by the lender, Money Partners Limited, to whom Norton introduced the Claimants for the purpose of obtaining credit. That amounted to 8.77% of the loan advanced, £30,495. The second commission was £1,685.25 paid to Norton by the insurer providing the PPI, Pinnacle Insurance. That amounted to 45% of the PPI premium.
  4. As it happens a yet further commission of £659.84 was paid by Pinnacle to Money Partners. That represented a further 17.6% of the premium. So of the £3,745 lent to fund the PPI premium, 62.6% comprised commissions. Indeed it is worth reflecting that out of the £30,495 advanced, £5,610.25 or 18.4% represented fees or commissions. It is to the great credit of Mr and Mrs McWilliam that they repaid the loan in full in 2007.
  5. In August 2009 the Claimants began proceedings in the Chester County Court seeking a variety of relief against Money Partners and Norton including a claim that Norton should account to them for the two additional commissions which they had received. By the time the matter came to trial in May 2011, at the Teeside County Court Money Partners had gone into liquidation and the claim against them had by then been discontinued. Other claims fell away at trial. In the event the Judge, Mrs Recorder McMullen, was concerned only with the claim that Norton should account to its clients for the two additional commissions of £2,675 and £1,685.25, and also with a claim for breach of statutory duty.
  6. After a two day trial the Recorder dismissed all of the claims. She firstly held that the additional commissions had not in fact been received by Norton but by a different company, Fintel Limited, "Fintel", a Jersey based company which appears to have used "Norton Finance" as a trading name. Apparently there was a "Broker Agreement" between Money Partners and Fintel. Fintel is said to have outsourced the information gathering, processing and packaging of loans to other companies, including Norton. At all events the Judge accepted evidence given at trial which demonstrated that whilst Norton had acted as credit brokers in this loan transaction, the additional commissions in question had been paid not to Norton but to Fintel. This evidence contradicted admissions made by Norton both in correspondence and in the pleadings. This finding rendered it unnecessary for the Judge to decide whether Norton had owed to the Claimants a fiduciary duty, but she went on to indicate that had that point arisen she would have found that no fiduciary duty was owed. Indeed the Judge found that there was no contract between the Claimants and Norton. The Judge also dismissed the claim in respect of breach of statutory duty and there is no appeal against that part of her decision.
  7. The first question on this appeal is whether the Judge was right to allow Norton to resile from its admission that it had received the additional commissions. The second question is whether the Judge should have found that Norton owed a fiduciary duty to the Claimants. The third question is whether, if such a duty was owed, there was a breach of that duty.
  8. Permission to appeal on these points was granted by Sir Richard Buxton on 13 October 2011. The hearing of the appeal was fixed for 15 March 2012. Norton went into administration on 7 February 2012, following which the administrators notified the Court that, pursuant to paragraph 43 of Schedule B 1 to the Insolvency Act 1986, no legal process might be continued against Norton without the consent of the administrators or the Court. The decision was taken by the Claimants not to proceed with the appeal and a notice of dismissal was filed at court signed by their solicitor and by the administrators for Norton. The appeal was dismissed by order of Deputy Master Bancroft Rimmer on 12 April 2012.
  9. On 24 January 2013 Norton entered Creditors Voluntary Liquidation. In such circumstances legal process against Norton is possible without the permission of the liquidators or the Court. On 4 March 2014 the Claimants applied to reinstate their Appellant's Notice of 12 August 2011 making clear that if permitted so to do, and if the appeal is successful, the Claimants intend to seek payment of compensation from the Financial Services Compensation Scheme. The liquidators consented. On 16 May 2014 at an oral hearing at which Norton was unrepresented, the Court, comprising Maurice Kay and Floyd LJJ, granted permission to reinstate the Appellant's Notice and set aside the order of 12 April 2012. The Court gave no reasons for that decision, or none which we have been shown. For my part I would not have regarded the consent of the liquidators as either a decisive or even, in the circumstances, a relevant consideration. It is said that the case raises issues of principle applicable to many other cases. If so this appeal is a very unsuitable vehicle for the resolution of those issues, since the liquidators made clear that they would take no part and have been unrepresented. The Court has had to resolve difficult and contentious issues without the assistance of adversarial argument.
  10. The Admission Point

  11. Paragraph 5 of the Particulars of Claim dated 18 August 2009 alleged that Norton, in breach of fiduciary duty owed to the Claimants, had received the additional commissions, payment of which was made without informing the Claimants either as to the fact of payment or as to the amount.
  12. In its Defence of 30 September 2009 Norton denied receipt of the additional commissions. It acknowledged receipt of £750 from Fintel on completion of the loan "to cover Norton's packaging and processing costs." This is presumably a reference to the "broker fee."
  13. On 12 March 2010 the Claimants' solicitors indicated to Norton's solicitors that the complexities of the issues in the case, including the relationship between Norton and Fintel, rendered it appropriate that the case be reallocated to the Multi Track and assigned a time estimate of two days for trial.
  14. Norton's solicitors were concerned to reduce costs and in particular, to that end, to avoid reallocation of the case to the Multi Track. Accordingly, on 25 March 2010 they wrote to the Claimants' solicitors in these terms:-
  15. "In relation to payments by the First Defendant in relation to the PPI, and for the purposes of these proceedings, Norton Finance UK Ltd are to be treated as having received the monies described in the Particulars of Claim as being "commission".
    For that purpose therefore and whether acting as Principal or Agent in relation to the PPI, Norton Finance UK Ltd will bear any liability that the court considers arises in relation to the PPI as claimed by the Claimant in these proceedings.
    On receipt of the "commission", there was a private arrangement between Norton Finance UK Ltd and Fintel Ltd as to the allocation of commission between them.
    In the regard therefore and for the purposes of these proceedings, it is accepted therefore that Norton Finance UK Ltd received the "commission".
    We therefore enclose an amended Defence to reflect the position as set out in this letter.
    We would be grateful if you would please let us know whether you require our client to make an application to Court for the purposes of that amendment."

    That seems to be an admission of receipt of the PPI commission, although not the loan commission, an impression borne out by the Amended Defence. The new paragraph 5 in that document read:-

    "The Second Defendant denies that it owed the Claimants a fiduciary duty as claimed in paragraph 5 of the Particulars of Claim or at all. The Second Defendant admits that it received monies from the First Defendant which included a commission in respect of the Payment Protection Plan. No admission is made by the Second Defendant to the last sentence of paragraph 5 of the Particulars of Claim. Save as admitted and averred paragraph 5 of the Particulars is denied."

    I should add that the last sentence of paragraph 5 of the Particulars of Claim is the allegation that the commission payments were made without informing the Claimants either as to the fact or as to the amount of payment.

  16. On 27 April 2010 there was filed the first Witness Statement of Julie Gregory, Norton's Group Compliance Manager. At paragraph 36 she said this:-
  17. "For the purposes of these proceedings, Norton Finance (UK) Limited dealt with all of the matters and therefore should any liability be determined by the Court in relation to the PPI then that liability will be met by Norton Finance (UK) Limited."
  18. On 20 May 2010 Norton's solicitors wrote to the Claimants' solicitors in these terms:-
  19. "We cannot agree at the present time that the matter comprises the complexities you allege, thereby requiring a two day Hearing and reallocation to Multi Track.
    In other matters where the same issues have been raised against our client, together with the lender, the matter has been disposed of in less than a day.
    The matter of Fintel Limited referred to in your letter to the Court of the 12th May 2010 has been settled by reason of the amended Defence."
  20. On 22 September 2010 Norton's solicitors wrote again to the Claimants' solicitors. In that letter they stated:-
  21. "For the purposes of these proceedings, Norton Finance (UK) Ltd received the commissions together with a broker's fee referred to in paragraph 23 of Julie Gregory's witness statement. Paragraphs 34 and 35 of Mrs Gregory's witness statement together with exhibits referred to therein identifies the commission of £2,675.00 being paid to Norton Finance (UK) Ltd in respect of the loan. In addition there was £1,685.25 being received by Norton Finance (UK) Ltd from Pinnacle Insurance in respect of the PPI. Of the commissions received by Norton Finance (UK) Ltd for the loan, Norton Finance (UK) Ltd made a payment to Fintel Ltd which was a private arrangement between those companies. Consequently the pleadings and evidence on behalf of Norton Finance (UK) Ltd evidence and confirm that Norton Finance (UK) Ltd received the commissions in relation to the matters raised in these proceedings."
  22. On 10 March 2011 District Judge Cuthbertson directed that the claim be reallocated to the Multi Track. He also gave the Claimants permission to amend their Particulars of Claim. The resulting Amended Particulars of Claim were, as the Recorder later observed with studied understatement, somewhat diffuse, but the allegation concerning the receipt of the additional commissions in breach of fiduciary duty was effectively wholly unchanged. The order of the District Judge was simply that the Defendants be permitted to file and serve an Amended Defence. In the ordinary way, that should be regarded as permitting amendments consequential on the amendments to the Particulars of Claim, which were substantial, but for the present purposes irrelevant. I should add that the Amended Particulars of Claim were introduced at paragraph 1 with the following statement:-
  23. "These Particulars of Claim replace the original Particulars of Claim in their entirety… "
  24. On 11 April 2011 Norton filed a Re-amended Defence. That document was introduced with the following preamble:-
  25. "This Re-amended Defence is served in response to the Amended Particulars of Claim served by the Claimants. It replaces in its entirety any earlier versions of the Defence."

    The relevant paragraph read:-

    "11. Norton plead as follows to paragraph 15 of the Particulars of Claim:
    a) It is denied that Norton owed the Claimants any such fiduciary or 'general' duties.
    b) If such duties did exist, they were not breached.
    c) Norton do not admit that they received commission payments totalling £2,675 in respect of the loan and £1,685.25. The Claimants are specifically required to prove that Norton (as opposed to any other third party which had outsourced its packaging and processing operations to Norton) received such payments.
    d) Norton made adequate and appropriate levels of disclosure to the Claimants. Such disclosure was made in accordance with their obligations as independent intermediaries acting on their own account."

    I should add that whilst paragraph 15 of the Amended Particulars of Claim is not couched in identical language to paragraph 5 of the unamended Particulars of Claim, the only, and immaterial, difference is that the receipt of the additional commissions is said to have been a breach of both Norton's fiduciary duty and its "general duty".

  26. On 3 May 2011 the Claimants served a Reply. Paragraph 8 reads:-
  27. "8. As to paragraph 11 of the Re-Amended Defence the Claimants join issue with Norton and put Norton to proof as to 11 (c) in not admitting the commission payments in the light of the First Defendant's averrals as to such payment as set out in paragraph 18 of the Particulars of Claim both as to the payment of commission and as to the agreement with Norton. It is simply inappropriate for Norton to rely upon an undisclosed agency relationship with a third party without showing how the Claimants were aware of such agency and such averral is amendable to strike out by the Court of its own motive."

    The reference to the First Defendants is a reference to Money Partners. This is a curious paragraph, but it was in any event overtaken by further correspondence.

  28. On 4 May 2011 the Claimant's solicitors wrote to Norton's solicitors in these terms:-
  29. "We ask you to consider forthwith the re-emerged allegation regarding Fintel Limited. We understood that you had conceded this matter and in view of the imminence of Trial believe this ought to be sorted out forthwith."

    Trial was listed to start on 31 May 2011.

  30. On 16 May 2011 two letters crossed. Norton's solicitors, who had in the meanwhile been reminded of their letter of 25 March 2010, set out at paragraph 1 above, promised to revert in respect of the issue as soon as possible. The trial was by now of course only two weeks away. However on the same day the Claimants' solicitors wrote:-
  31. "We also refer to our telephone conversation when we pointed out to you the reason why we wrote on the 11th May and make specific reference to letter dated the 15th (sic, 25th is obviously intended) March 2010.
    What is not clear from the letter is whether Norton also accept that any payments made to it by the lender in respect of the loan (as distinct to the PPI) are to be treated as having been received by Norton and would you please clarify in this respect.
    If your client is not seeking to resile from the matters addressed in the open letter of the 15th (sic) March 2010, please confirm that your client withdraws from the appropriate averrals in the Re-Amended Defence set out in paragraph 11.
    It is our clients' case that your client is estopped from raising such issue and in view of the imminence of Trial this matter does need clarifying forthwith."
  32. On 17 May 2011 the Claimants' solicitors wrote again to Norton's solicitors. I set out the letter in full:-
  33. "This matter is listed for a 2 day Multi Track Hearing two weeks today and we are most disturbed that the issue the subject of recent correspondence is still outstanding. We have written to you about this on a number of occasions and have specifically referred to correspondence from you regarding the issue of Fintel Limited and the receipt of commissions, and your letter of yesterday still fails to reaffirm the position that your client accepts that commission payments have been received by it from the lender.
    We shall be asking the Court to order Judgment un our client's favour on this issue and for a Costs Order in any event by reason of the following:-
    1. The originally pleaded Defence that Fintel Limited and not your client received commissions has been made.
    2. There was considerable inter party correspondence before receiving your written acknowledgement conceding the Claimants' case in this respect.
    3. The latest Amended Defence again has pleaded the issue and notwithstanding that we raised this with you, you stubbornly refuse to acknowledge what we view as a position that your client is estopped from averring, and put us to the trouble of alerting you to your own correspondence.
    4. Notwithstanding the clear wording of your own letter, which we identified yesterday, you have responded that you are still considering the position.
    We are also concerned that there appears to be further failures on your part to understand your client's own averrals as follows:-
    1. By letter dated the 2nd September 2008, and as set out in the Re-Amended Particulars of Claim, Money Partners confirm paying £2,675.00 to Norton Finance.
    2. Julie Gregory of your client admits in her Witness Statement of the 27th April 2010 (paragraph 36) payment of monies to the Defendant from the lender.
    3. The email disclosed yesterday and being item 5 of your supplemental disclosure refers to there being a written agency agreement in place between Fintel Limited and Money Partners Limited, but that this is unavailable. However, your own disclosure (originally in support of your averrals that Fintel Limited and not your client received the commissions) contradicts such email (see paragraph 52(x) to (zii) of original Trial Bundle.
    Quite frankly, your conduct throughout and as evidenced herein, is embarrassing and yet your client resolutely seeks to pursue this case. We shall be asking the Judge to have regard to these matters and to sanction your clients in respect of the same.
    This is not an appropriate way to conduct litigation and it does not appear that both you and Counsel are unclear as to your own case and as to the frailties, as we see them, in such Defence.
    This letter and the appropriate correspondence and pleadings will be drawn to the attention of the Court and we again ask you to confirm by return your client's position and to deal with the outstanding query relating to loan commissions as stated in our communication of the 16th instant. "
  34. On 19 May 2011 Julie Gregory's second Witness Statement was served. So far as relevant it reads:-
  35. "3. There is a Broker Agreement between Money Partners Limited ("MPL") and Fintel Limited ("Fintel") which was disclosed by the solicitors to the Claimants under cover of their letter to me dated 20/04/09, a copy of which is attached at pages 1 – 9 of exhibit "JG2". Fintel was a credit broker based in Jersey. It was a separate company to Norton although it had a trade name of Norton Finance which it used in its advertising. As I understand it, Fintel is no longer trading in that it is not doing any new business but it is carrying out day to day administration. Fintel advertised for loans and outsourced the information gathering, processing and packaging of those loans to other companies such as Norton.
    4. As I understand it the Solicitors to the Claimants are trying to make an issue regarding Fintel and the receipt of commissions and whether Norton accepts that commission payments have been received by it from MPL.
    5. As has always been stated in this matter, Norton only received a processing and packaging fee of £750 which was paid to Norton by Fintel. I refer to my letter to the Claimants' Solicitors dated the 13th May 2009 which is exhibited at pages 39 and 40 to my original Witness Statement. In my letter I have stated that Fintel paid £750 to Norton. Once Fintel had passed the enquiry to Norton, the enquiry would be dealt with in our usual way as described in my original Witness Statement.
    6. The completion fee of £500 which is referred to on the first page of the Credit Agreement between the Claimants and Money Partners Loans Limited was received and kept by the lender. For the avoidance of doubt, the sum of £500 was not paid to Norton.
    7. I will also confirm for completeness that the commission sums of £2675 for the loan and £1685.25 for the PPI were paid by the lender to Fintel. I understand that the letter from MPL dated 02/09/08 which is exhibited at page 37 to my original witness statement refers to these payments both being made to "Norton Finance". In view of the fact that there is no agreement between Norton and MPL (or Money Partners Loans Limited), the fact that there is an agreement between MPL and Fintel, and Norton did not receive either of these commissions, I can only deduce that when MPL refers to "Norton Finance" it means Fintel Limited trading as Norton Finance. I confirm that Norton did not receive any part of these two commission payments."
  36. On 31 May 2011 the trial began. Mr Banks for the Claimants identified in his brief opening that there was an issue whether Norton had received the commissions. However in his skeleton argument dated 30 May 2011 which the Recorder was invited to and did read before the trial, Mr Banks made clear that the Claimants relied upon the concessions contained in Norton's solicitors' letter of 25 March 2010, the Amended Defence which followed it, the admissions in the first Witness Statement of Julie Gregory and the express clarification provided by Norton's solicitors in their letters of 20 May 2010 and 22 September 2010. Mr Banks pointed out that Norton had never sought to resile from these admissions, which was correct in the sense that Norton had never made an application to the Court to withdraw its admission. CPR 14.1 (1) provides that "a party may admit the truth of the whole or any part of another party's case." Paragraph 14.1 (2) goes on to provide "the party may do this by giving notice in writing (such as in a statement of case or by letter)." Paragraph 14.1 (5) provides:-
  37. "The permission of the court is required to amend or withdraw an admission."
  38. After Mr Banks' extremely short opening the oral evidence was called. There then followed an attempt by Mr Banks to cross examine Julie Gregory on the effect of the pleadings and the solicitors' correspondence. This predictably unsuccessful exercise at least had the merit of flushing out the true nature of the dispute. Mr Turner for Norton interrupted and took his stand on the Re-Amended Defence having implicitly withdrawn the admission. He explained that the concession had initially been made with a view to keeping costs down but that once the Claimants had succeeded in having the case reallocated to the Multi Track and set down for a two day trial the "costs saving motivation" had disappeared.
  39. So far as the witness was concerned, she was very clear in her evidence, which was effectively unchallenged, that although Norton had been the broker responsible for "sale" of the loan and the PPI, and had at an earlier stage accepted that it had received the two additional commissions, the truth was that it had in fact been Fintel which received them.
  40. The matter was not again addressed until final submissions. Mr Banks took the point that receipt of the additional commissions had been admitted in correspondence and on the pleadings and that no application had been made to be permitted to resile from the admission. Somewhat ironically it was Mr Turner who drew the attention of the Court to the provisions of CPR 14.1. Mr Banks did not rely upon any prejudice which had accrued to the Claimants in consequence of reliance on the admission. He did however make the point that the Claimants did not know whether Norton and Fintel were connected parties and that it might be irrelevant which of them had actually received the commissions. Later he abandoned that approach in these terms:-
  41. "There is the argument that the two companies are connected, and so payment to one is payment to the other, but I do not think that the Court has the evidence to be able to substantiate that claim at this point."

    Mr Turner for his part acknowledged that the position was unsatisfactory but persisted with his submission that the admission was implicitly withdrawn by service of the Re-Amended Defence. He did not make an application for permission to withdraw the admission.

  42. The judge regarded the position as very unsatisfactory but, despite the absence of a formal application for permission to withdraw the admission, she did not hold Norton bound by it. She noted the purpose for which the admission had been made and continued:-
  43. "28. Despite the lack of a formal application for permission to withdraw the earlier admission I do not hold Norton bound by it. The purpose of the rules as to admissions is to reduce costs and delay by encouraging parties to narrow the issues by making admissions. The first consideration though must be to give effect to the overriding objective to deal with cases justly and Mrs Gregory having been cross-examined on who received payment of commission and having given credible evidence that it was Fintel, I do not consider it would be in the interests of justice for me to proceed as though that evidence had not been given on a central issue in the proceedings. "
    29. In terms of explanation for the withdrawal of the admission, it was said that it had been a qualified admission for the purpose of the proceedings and I note that although that was not expressly stated in the re-amended Defence it was so stated in the solicitors' letter with which it was served dated 25th March 2010.The wish to keep the matter in the fast track presumably by confining the issues is borne out by the chronology – the concession was withdrawn when the matter had been re-allocated.
    30. It has been apparent from the service of the re-amended Defence that Norton were or may be seeking to resile from their earlier admissions. In their letter of 16th May 2011 for example the Clamaints' solicitors said 'if your client is not seeking to resile …please confirm that your client withdraws from the averrals in paragraph 11 of the (re)amended Defence'. There is no evidence that the Claimants were prejudiced in the presentation of their case at trial but were aware that this remained an issue and Norton's witness, Mrs Gregory, was cross-examined upon it.
    31. However, I do consider that the position is very unsatisfactory as Norton's counsel acknowledged. There has been strategic manoeuvring and a lack of transparency by Norton."
  44. In my judgment the judge did on this issue inadvertently and for understandable reasons reach a conclusion which was in all the circumstances unjust. The fact that evidence had been given which contradicted the admission was not initially relevant. The question in such circumstances, as pointed out by Lord Phillips of Worth Matravers MR in Loveridge v Healey [2004] EWCA Civ 173, at paragraph 24, is whether the party in question should be permitted to advance a case which has not hitherto been pleaded. So had the non-admission of receipt of commission in fact been pleaded? Although it is not I think put in this way by Mr Clark, Norton did not in my view have permission to amend their Defence so as to withdraw the admission, because the Order of 10 March 2011 of District Judge Cuthbertson, properly understood, permitted only amendments consequential on the amendments to the Particulars of Claim. The judge was therefore in my view quite correct not to accede to the submission that service of the Re-Amended Defence involved an implicit withdrawal of the admission. It did not, because withdrawal could only be achieved with permission of the court. Mr Banks was therefore right to assert that no application to withdraw the admission had been made or adjudicated upon. The judge has effectively permitted the withdrawal of the admission on her own motion pursuant to her wide case management powers. Although she was addressed at length by Mr Banks, she did not in fact give him an opportunity to address the question whether withdrawal of the admission should be permitted, for the simple reason that Mr Banks did not realise that he had to address such an application. It can doubtless be said that had Mr Banks identified any prejudicial reliance on the admission, it would have concentrated the judge's mind on whether it was in the circumstances appropriate to permit withdrawal of the admission, but in fairness to Mr Banks he had made very clear his position that there was simply no application to withdraw the admission, and therefore no need to address argument on the question whether withdrawal should be permitted.
  45. I would not for my part be critical of Norton for admitting receipt of the commissions for the purpose of the proceedings only and in an effort to reduce the ambit of the dispute and thus its exposure to costs. The question is rather whether, that attempt having failed, Norton should be permitted to resile from the position adopted, and if so on what terms. The considerations which are then relevant include those helpfully summarised at PD 14 paragraph 7.2. The critical features here were the prejudice that might be caused to the Claimants if the admission was withdrawn, the stage in the proceedings at which any application fell to be considered, in particular in relation to the trial date, and the prospects of success of the claim in relation to which the admission was made in the event that it was withdrawn. Whilst the judge recorded that there was "no evidence that the Claimants were prejudiced in the presentation of their case at trial, and that Mrs Gregory was cross-examined upon it," with respect to the judge the cross-examination of Mrs Gregory, and Mr Banks' acceptance that the Court did not have the evidence to substantiate the suggestion of a connection between Norton and Fintel, was ample demonstration of prejudice to the Claimants if Norton was not to be held to its admission. In the light of the admission there had been no disclosure given by Norton, or by Money Partners for so long as they remained in the Action, on the issue of receipt of commission or as to the relationship between Norton and Fintel. Further investigation might very well have revealed either that Norton had indeed received the additional commissions or that it was immaterial to which of them the commissions were in fact in the first instance paid, because of their close relationship. Understandably the Claimants did not undertake these investigations or press for disclosure. Effective cross-examination of Mrs Gregory on this topic was impossible in the absence of documents evidencing receipt of the commissions, indicating the nature of the relationships, and generally making good her assertions. In the event the Claimants were forced into conceding that if the Court found that Norton did not receive the commissions, any claim against it founded on breach of fiduciary duty must fail.
  46. It is unfortunate that the Claimants' solicitors did not follow through their asserted intention to seek a ruling from the Court on the status of the admission – see their letter of 17 May 2011. However that may be, the upshot is I consider that the judge has exercised a discretion which she was not asked to exercise and upon which she was not addressed. The result is one of manifest unfairness. In my judgment Norton should have been held to its admission. It follows that the judge did have to decide whether Norton owed a fiduciary duty to the Claimants, and we must therefore re-examine the conclusion to which she indicated she would have come had that point arisen for determination. It is as I have already pointed out unfortunate that we must perform this task without the benefit of adversarial argument.
  47. Fiduciary Duty

  48. In order to address this question I need to say a little more about the facts. Mrs McWilliam received a flyer from Norton and as she and her husband were thinking of taking on a loan she telephoned them. Standard information was taken from her and entered on to an Enquiry Form. In answer to a standard form enquiry Mrs McWilliam indicated that she was interested in receiving details of Payment Protection Insurance. Mrs McWilliam later signed a pre-populated Application Form and returned it to Norton. The declaration in the Application Form above the signatures of the Claimants acknowledged that Norton would receive commission from the lender if the loan completed and that the Claimants consented to Norton retaining the commission. The declaration also stated that it was important that the applicants read the information in the Borrower Information Guide. Mr McWilliam appears to have played no part in the transaction other than to sign documents where required.
  49. Mrs McWilliam was sent a copy of the Borrower Information Guide. She did not read it. That document explained that a credit broker is a firm or person who introduces the consumer (you) to a lending company for the purpose of obtaining credit. It also explained that the task of the credit broker is to obtain the loan you require on terms acceptable to you. On the topic of broker remuneration the Guide said this:-
  50. "Common methods of Broker Remuneration
    FISA lending companies do not permit any type of application fee other than those detailed with the loan agreement.
    Any Broker employed by you to arrange your loan will want to be paid for doing so. If the broker is FISA registered the broker will be paid by the lender involved in the transaction. Unless the broker notifies you to the contrary the broker will receive one or more of the following commissions:
    In addition to the above, the broker may charge you a fee for arranging the loan.
    The broker should tell you the amount of any fee in writing before you enter into any agreement.
    The broker may agree with you a fee which you will have to pay in respect of his work in arranging your loan. Some lenders limit the amount of any fees a broker may charge. If a fee is charged the broker will also receive a commission from the lender as described above. The broker will tell you if this is not the case.
    The fee will be included in the loan amount. The loan agreement will clearly show the amount of the fee and any extra interest charged on it. All FISA lenders require to know if their borrowers are required to pay a fee. Any fee charged will be part of the total charge for credit; this will be included in any APR shown on the loan agreement."
  51. Mrs McWilliam next had a telephone conversation with an employee of Norton, Tracey. She was told that Norton did not offer advice but provided information only. She was told that a loan was available from Money Partners and that there was only one PPI product available with that loan and told the terms on which it was available. She was told that the premium would be added to the loan, that it would be valid for five years with interest over the term of twelve years, that there was a thirty day cooling off period and that she would be sent a policy summary and should read the exclusions section.
  52. Mrs McWilliam was then sent further documentation comprising the credit agreement, a Payment Protection Insurance Buyer's Guide, Keyfacts about Norton's insurance services, Keyfacts Policy Summary, statement of price and a Demands and Needs statement. The Keyfacts documents stated:-
  53. "You will not receive advice or a recommendation from us for Accident, Sickness, Unemployment and Life cover. We may ask some questions to narrow down the selection of products that we will provide details on. You will then need to make your own choice about how to proceed."

    The Demands and Needs statement says in capitals at the top "THIS IS AN INFORMATION ONLY SALE" and in the customer declaration which the Claimants signed they confirmed that Norton had not commented on the suitability of the insurance to their circumstances or recommended that they take out the insurance.

  54. The judge accordingly found that this was an information only sale and not an advised sale.
  55. At paragraph 18 of her judgment the judge said this:-
  56. "Mrs Gregory explained the procedure that once the information is gathered from an applicant and credit scored it is fed into the computer which generates available loans from their panel of lenders and the applicant is told of the one with the most competitive interest rate that matched their criteria. In this case it had failed with one or two lenders because of outstanding credit so that when it got to Tracey it was already sorted what lender and product was available. It was not advice that was given at all, just basic information on the product."
  57. On the basis of those facts it is apparent that the task of the broker was to identify that lender willing to lend to these borrowers which offered terms most advantageous to the borrowers. That is likely to mean the lender offering the most competitive interest rate, but there could be other factors. Having undertaken to supply information concerning PPI, Norton's task extended to identifying an insurer willing to offer PPI cover in respect of a loan by this lender on the terms identified. There were other tasks too: inputting information gathered from the Claimants into a computer system for sourcing loans and processing, packaging and arranging the loan and PPI policy.
  58. For performing this service Norton was on any showing paid by the Claimants the broker fee of £750, although the completion fee of £500 was apparently retained by Money Partners. In these circumstances I do not understand the judge's conclusion that there was no contract between the Claimants and Norton. Plainly there was. I would characterise it as a contract of agency, just as Lord Sumption in Plevin v Paragon Personal Finance Limited [2014] 1 WLR 4222 characterised the broker there carrying out a very similar function – see the facts at paragraphs 3-5 and the conclusion at paragraph 33 of Lord Sumption's judgment. The broker in Plevin also made a recommendation as to the suitability of the loan and the PPI product, so to that extent its function was more extensive. That distinction does not however in my judgment lead to the conclusion that in the present case there existed no contractual agency relationship. It may be relevant to the question whether a fiduciary duty was owed.
  59. Merely to identify the existence of a contract and to characterise the relationship as one of agency is not conclusive of the question whether a fiduciary duty was owed. Article 1 (4) at page 1 of Bowstead and Reynolds on Agency 19th Edition, reads:-
  60. "A person may have the same fiduciary relationship with a principal where he acts on behalf of that principal but has no authority, and hence no power, to affect the principal's relations with third parties. Because of the fiduciary relationship such a person may also be called an agent."

    Such an agent is not the paradigm. The discussion continues, at paragraph 1-014 of Bowstead and Reynolds;

    "Since the paradigm agent has conferred on him special powers which enable him to change the legal position of another, the law also imposes on him special duties of a fiduciary nature towards that other. These duties are not necessarily contractual (though of course they may be) for it is not necessary that there be any contract between principal and agent. Rather, they originate from equity, and are connected with the duties imposed by equity on express trustees."

    At paragraph 1-019, under the rubric "Incomplete agency: internal relationship only - the "canvassing" or "introducing agent" we find the following:-

    "Article 1 (4) seeks to achieve completeness by taking in a well-established type of intermediary who makes no contracts and disposes of no property, but is simply hired, whether as an employee or independent contractor, to introduce parties desirous of contracting and leaves them to contract between themselves. In effecting such introductions he is remunerated by commission, which he may sometimes take from both parties. Such a person is a common figure in most western legal systems and may well be referred to as an agent. The most obvious example of such an intermediary in the English cases is the estate agent, who introduces purchasers to vendors and tenants to lettors of houses and vice versa. Such persons are sometimes also referred to as brokers, and indeed in some English-speaking countries the estate agent is referred to as a "real estate broker": but this may be misleading since the current practice, at any rate in England, is to use the term "broker" for persons who go beyond introductions and certainly do make contracts for their principals, eg, commodity brokers, insurance brokers and stockbrokers. Canvassing agents are on the fringe of the central agency principles used by the common law, since their powers to alter their principal's legal relations are at best extremely limited. They often, however, have authority to receive and communicate information on their principal's behalf, and in so doing have the capacity to alter their principal's legal position. They also usually act in a capacity which may involve the resolve of trust and confidence, and hence may be subject in some respects to the fiduciary duties of agents towards their principals."

    So the question is whether Norton was acting in a capacity which involved the repose of trust and confidence.

  61. In that regard one critical factor is the nature of the borrowers. This was not "non-status" lending as defined by the Office of Fair Trading in its Guidelines for lenders and brokers, OFT 192 revised November 1997. Non-Status borrowers are there defined as those with impaired or low credit ratings who would find it difficult generally to obtain finance from traditional sources on normal terms and conditions. The Claimants did not fall into that category. They were not however financial sophisticates. They were people of relatively modest means with a history of credit problems. They were vulnerable, in that they had debt which was for them substantial in respect of which they needed assistance in finding a loan to ease the burden of servicing that debt and to put them a position where they could carry out an improvement to their home. The judge said this, in the context of Mrs McWilliam not having read the Borrower Information Guide:-
  62. "She said, on this and other occasions that she was not "sophisticated" but I found Mrs McWilliam to be a reasonably competent person who had dealt with their credit problems and PPI previously."

    For my part I do not regard reasonable competence and sophistication as descriptions of the same quality or as synonymous. It is possible in matters of finance to display reasonable competence in handling relatively straightforward transactions and yet to lack what would ordinarily be called financial sophistication.

  63. Arklow Investments Limited v Maclean [2000] 1 WLR 594 was concerned with the question whether a merchant bank owed a fiduciary duty not to misuse confidential information received from an intending borrower in relation to a proposed acquisition. On the failure of the bank and the intending borrower to agree terms, the bank withdrew its offer of finance and negotiated with others for the provision of finance in relation to the same proposed acquisition. At page 598 Henry J, giving the advice of the Judicial Committee of the Privy Council which also comprised Lord Steyn, Lord Lloyd of Berwick, Lord Hobhouse of Woodborough and Sir Andrew Leggatt, said this:-
  64. "The description of the duty under consideration as being one of loyalty was not seen by Mr Underhill as being the most appropriate one, but for present purposes it is convenient to label it in that way. In the present context, the concept encaptures a situation where one person is in a relationship with another which gives rise to a legitimate expectation, which equity will recognise, that the fiduciary will not utilise his or her position in such a way which is adverse to the interests of the principal. An example of the obligation relevant to the present case is not to exploit or take advantage of the position of fiduciary at the expense of the principal. The existence and extent of the duty will be governed by the particular circumstances."

    The Board went on to adopt and approve the following passage from the judgment of Millett LJ in Bristol and West Building Society v Mothew [1998] Ch 1 at page 18:-

    "A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary. As Dr Finn pointed out in his classic work Fiduciary Obligations (1977), page 2, he is not subject to fiduciary obligations because he is a fiduciary; it is because he is subject to them that he is a fiduciary."
  65. To my mind the present is a paradigm instance of a relationship of that description. Norton should not have placed itself in a position where its duty and its interest might conflict, nor profit out of the trust reposed in it to get the best possible deal, nor act for its own benefit without the Claimants' informed consent.
  66. In Hurstanger Limited v Wilson [2007] 1 WLR 2351 this court described the relationship between the borrower and the independent credit broker in that case as "obviously a fiduciary one" – see per Tuckey LJ at paragraph 33, with whom Waller and Jacob LJJ agreed. The judge in the present case seems to have regarded Hurstanger as distinguishable on the basis that Norton offered no advice or recommendation. There is no indication in the report of Hurstanger that the broker there offered any advice or recommendation that went beyond that which was effectively given here by Norton. At the very least, Norton implicitly told the Claimants that the terms offered by Money Partners were the most competitive to which they had access. I appreciate that that does not amount to a recommendation of suitability. But it is an indication that what was being offered was the best possible deal. As Tuckey LJ put it at paragraph 33:-
  67. "As a fiduciary the agent was required to act loyally for the Defendants and not put himself into a position where he had a conflict of interest. Yet he agreed that he would be paid a commission by the other party to the transaction which his clients had retained him to procure. By doing so he obviously put himself into a position where he had a conflict of interest. The Defendants were entitled to expect him to get them the best possible deal, but the broker's interest in obtaining a further commission for himself from the lender gave him an incentive to look for the lender who would give him the biggest commission."
  68. I note that in that part of his judgment dealing with the question whether informed consent had been given to the payment of commission, Tuckey LJ indicated that the disclosure by the lender to the borrower that in certain circumstances it paid commission to brokers/agents should have been accompanied by a warning that its payment to the broker might mean that he had not been in a position to give unbiased advice. I do not however detect in Tuckey LJ's reasoning any indication that he regarded the circumstance that the broker was providing a recommendation, or advice, if the broker did, as the critical feature which justified the conclusion that a fiduciary duty had been assumed.
  69. More generally, as it seems to me, the circumstance that the Claimants were not looking to Norton for any advice or recommendation other than that to which I have referred is not relevant to the question whether a fiduciary duty was assumed. As pointed out in Jackson and Powell Professional Liability at paragraph 2-141, the reliance upon which the trust and confidence which gives rise to fiduciary obligations is based is not the same sort of reliance as gives rise to a tortious duty of care.
  70. "Rather, it is the fact that the principal so relies on the fiduciary as to leave the principal vulnerable to any disloyalty by the fiduciary and so reliant on his good faith."
  71. Nor do I regard it as conclusive of the question whether a fiduciary duty was owed that the Insurance Conduct of Business rules in force at the time did not require disclosure by an insurance intermediary to a borrower of the amount of commission. In Hurstanger the relevant OFT regulatory materials encouraged, but did not require, disclosure of the amount or percentage figure of commission.
  72. In my judgment the Judge was bound by Hurstanger to find that the relationship between Norton and the Claimants was a fiduciary one, and so are we.
  73. Informed Consent?

  74. I have already referred to what was said in the Application Form and in the Borrower Information Guide as to the payment of commission. I do not for my part consider that the materials to which I have referred adequately alerted the Claimants to the possibility that Norton might receive a commission in respect of the loan additional to the agreed broker fee and to the agreed completion fee, had that latter fee been payable to Norton. For the avoidance of doubt, the further commission paid on the loan was not, or is at any rate not claimed or demonstrated to have been, one related to the overall volume of business placed by Norton with Money Partners as referred to in the Borrower Information Guide.
  75. The Claimants were alerted to the possibility of a commission based on a proportion of the premium for the PPI. The Claimants went ahead on this basis. Did they thereby give their informed consent to the receipt by Norton of the additional commission comprising 45% of the PPI premium?
  76. In my judgment the Claimants did not give their informed consent. The critical point is that the Claimants were not told how much commission would be paid. The case is again on this point in my view indistinguishable from Hurstanger. There the borrower agreed to pay a £1,000 broker's arrangement fee and accompanying the loan agreement was a document which stated:-
  77. "In certain circumstances this company does pay commission to brokers/agents."

    As well as the agreed arrangement fee of £1,000 the lender paid to the broker £240. At paragraph 44 Tuckey LJ said this:-

    "Was the defendant's informed consent obtained? I do not think it was. The passage which I have quoted was muddled although, read carefully for the reasons given by Mr Seymour, it may not in fact have been ambiguous. But it could and should have been clearer and informed the Defendants that a commission was to be paid and its amount and done so in terms which made it clear the Defendants were being asked to consent to this."
  78. It is true that Hurstanger was concerned with non-status lending. At paragraph 36 Tuckey LJ said this:-
  79. "Borrowers like the defendants coming to the non-status lending market are likely to be vulnerable and unsophisticated. A statement of the amount which their broker is to receive from the lender is, I think, necessary to bring home to such borrowers the potential conflict of interest."

    I have already indicated that the Claimants are to my mind to be regarded as for present purposes vulnerable and unsophisticated. They were probably not as vulnerable or as unsophisticated as many who resort to the non-status lending market, but I cannot see why a statement of the amount which their broker was to receive should be regarded as any the less necessary to bring home to them the potential conflict of interest.

  80. In fact at trial before the judge Norton conceded that if it was found to owe a fiduciary duty to the Claimants as contended, then that fiduciary duty was breached by receipt of commission without the informed consent of the Claimants in light of the decision in Hurstanger. By a Respondent's Notice Norton sought to withdraw that concession, although that Notice has fallen away and Norton is of course unrepresented on this appeal. We have the benefit of a skeleton argument prepared by counsel for Norton, Paul Chaisty QC and Mr Steven Turner, in December 2011, at a time when Norton was still trading and resisting the appeal. In that skeleton argument counsel suggest that Hurstanger should be treated with caution as there was not apparently cited to the court a line of authority beginning with Great Western Insurance Company v Cunliffe (1874) 9 Ch. App 525. Those cases are concerned with a well-established practice of the trade in the traditional insurance and reinsurance markets whereby brokers procure remuneration with the insurers or reinsurers, and not by arrangements with their own principals. It is true that in Lord Norreys v Hodgson (1897) 13 TLR 421 the Court of Appeal, headed by Lord Esher MR, applied this line of authority to a case where Lord Norreys approached a life insurance broker with a view to his procuring a loan of £20,000 (then a very considerable sum) on the strength of certain reversionary interests which would come to him on his father's death. Part of the transaction was that the plaintiff's life should be insured. The plaintiff agreed to pay the broker a commission of 1% on the amount of the loan. Both the loan and the insurance were effected with the Imperial Insurance Company, who agreed to pay the broker £210 as commission for introducing the insurance. The court held that the plaintiff knew full well that the broker would receive a commission from the insurance company for the introduction and that the broker was not liable to account for it to the plaintiff.
  81. These cases turn on customary usage or practice in the relevant market and, often, concern situations where the amount of the commission is standard or ascertainable on enquiry, but where the principal failed to make relevant enquiries. I do not consider this line of authority relevant to the context of Payment Protection Insurance sold to consumers. That is or was at the relevant time a very specialised and particular market in which the insurance element was subordinate to the procuring of a loan, and where borrowers were likely to include many who were relatively unsophisticated and, in the sense in which I have used the word, vulnerable. Furthermore, at the relevant time, as found by the Competition Commission in 2009 (see Plevin at paragraph 1) the market for PPI sold as a package with loans was characterised by limited competition and low levels of substitutability, resulting in higher premiums relative to what might be expected in a well-functioning market. Further, the commissions payable to intermediaries were very high, being typically between 50-80% of the gross written premiums, and were much higher than those paid for introducing the loan, so that brokers obtained much of their remuneration from the sale of the PPI policies. I do not consider that that is or was at the relevant time a market in which the same practices and usages as have obtained over many years in the traditional insurance markets can be regarded as established.
  82. Finally Mr Chaisty and Mr Turner submitted in their skeleton argument that as Norton was not recommending any particular loan or policy to the Claimants, so the likelihood of a conflict of interest was low. This is said to be relevant to the sufficiency of disclosure. The submission is that "the lower the likelihood of a conflict of interest, the less stringent the disclosure requirements." I do not follow this argument. It may be that the likelihood of a conflict of interest was low, particularly here as there was apparently available with the loan only one PPI product. That does not remove the incentive to look for the lender and/or associated insurer who would pay the biggest commission. It cannot affect the appraisal of the question whether in the circumstances informed consent was given.
  83. For all these reasons I would allow the appeal. In my view Norton must account to the Claimants for the additional commissions received in the sum of £4,360.25. That entitlement should also bear interest. We were asked to award it at the judgment rate, 8%, since the date of completion of the loan. The variable rate of interest under the loan agreement was 13.2% at the date of the agreement. Since 2008/9 interest rates have obviously been much lower, although we have been supplied with no information as to the likely rate of interest payable by consumers such as these Claimants borrowing a relatively small sum of this order. In all the circumstances an award of interest at 5% since the date of completion of the loan is I consider appropriate to reflect likely fluctuations in interest rates over the entire period.
  84. Mr Justice Mitting:

  85. I agree.
  86. Sir Robin Jacob:

  87. I also agree.

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