Agents who arrange to receive secret commissions on client introductions only have themselves to blame if judges refuse to enforce payment. However, the Court of Appeal has ruled in a ground-breaking case that a broker was not obliged to inform its clients of the precise amount of commission it was to receive.
The broker introduced a number of clients who were interested in derivates trading to a financial institution. The financial institution agreed to pay commission to the broker on transactions it performed on those clients’ behalf. The broker launched proceedings against the institution for alleged breach of that agreement.
A judge found that the institution had circumvented its contractual obligations to the broker by going behind its back and dealing directly with two important clients. The institution had also failed in its duty to disclose to the broker on a regular basis all trading information connected to those clients so that the broker could accurately calculate the commission due to it.
The judge, however, ruled that the broker was entitled only to nominal damages. That was on the basis that it had breached the fiduciary duties it owed to the clients by failing to tell them the precise amount of commission it was to receive. The judge described the commissions as secret and ruled that to award the broker substantial damages would offend against public policy in enabling it to profit from its own wrongdoing.
In ruling on the broker’s appeal against that decision, the Court found that the clients reposed trust and confidence in the broker and that the duty owed by the latter to the former could legitimately be categorised as fiduciary. However, the scope of that duty was limited and, on the facts of the case, it had not been breached.
The clients were aware that the broker would be remunerated for introducing them to the institution and there was no obligation on the broker to disclose to them the precise amount of commission it was receiving. The clients were at liberty to request that information and, if they did not like the answer, they would have been able to take their business elsewhere. In those circumstances, there was no public policy reason why the broker should not receive substantial damages. The amount of those damages remains to be assessed.