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Wilson & Anor v Hurstanger Ltd
Factual and Procedural Background
This appeal arises from a judgment in a county court concerning a regulated consumer credit loan agreement between the claimant lender, Company A, and the defendant borrowers, Plaintiff and Defendant. The defendants had taken a loan to pay off arrears on a mortgage and other costs, arranged through a broker. The loan was secured by a second charge on their house. The original judgment allowed enforcement of the loan agreement but discharged the defendants from liability for the claimant’s legal costs. The defendants appealed the conclusion that the loan agreement contained a prescribed term stating how repayment obligations were to be discharged, while the claimant appealed the conclusion that the agreement did not state the amount of each repayment. The Recorder rejected the submission that the claimant had paid a secret commission to the defendants' broker and refused permission to appeal that part; permission was later granted by the appellate court.
Legal Issues Presented
- Whether the loan agreement contained the prescribed terms required under consumer credit legislation, specifically how the repayment obligations were to be discharged.
- Whether the agreement stated the amount of each repayment as required by the Consumer Credit (Agreements) Regulations 1983.
- Whether the claimant paid a secret commission to the defendants' broker in breach of fiduciary duty and the legal consequences of such payment.
Arguments of the Parties
Defendants' Arguments
- The loan agreement did not properly state how the £295 legal cost was to be repaid, contrary to the prescribed terms under Schedule 6 paragraph 5 of the Consumer Credit (Agreements) Regulations 1983.
- The amount to be repaid should have been clearly stated in the agreement.
- The claimant paid a secret commission of £240 to the broker without informed consent, rendering the agreement voidable and entitling rescission and equitable relief.
Claimant's Arguments
- The agreement did state how the £295 legal cost was to be repaid, including the possibility of deferred payment with interest.
- There was no agreement to defer payment beyond completion of the loan.
- The disclosure that a commission “might” be paid to the broker was sufficient to negate secrecy of the commission payment.
- The defendants failed to prove inadequate disclosure or that the claimant procured any breach of fiduciary duty by the broker.
- Rescission of the loan agreement was not appropriate given the fairness and enforceability of the agreement.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| McGinn v Grangewood Securities Limited [2002] EWCA Civ 522 | Requirement that the amount of payments and any deferred payment terms must be stated in a signed document. | The court qualified an obiter statement that the amount of repayments must be stated, holding that the agreement complied with prescribed terms even though the exact amount was not expressly stated, so long as the manner of repayment was clear. |
| O'Hagan v Wright [2001] NICA 26 | The debtor must receive fairly precise information about the times and amounts of repayments. | The court found this general principle unhelpful in the precise regulatory context, emphasizing the flexibility allowed by the regulations. |
| Mahesan v Malaya's Housing Society [1979] AC 374 | Payment or receipt of secret commission is a form of fraud; remedies include rescission and compensation. | Applied to explain the legal consequences of secret commissions and the voidability of contracts procured by such payments. |
| Panama & South Pacific Telegraph Co. v India Rubber, Gutta Percha, and Telegraph Co. [1875] 9 Ch App 515 | Transaction is voidable at the principal's election where secret commission is paid, subject to counter-restitution. | Referenced to support the principle that secret commissions render contracts voidable. |
| Shipway v Broadwood [1899] 1 QB 369 | The real evil is the secrecy attending payment of commissions. | Used to distinguish between secret commissions and cases where disclosure negates secrecy. |
| Bartram & Sons v Lloyd [1904] 90 Law Times Reports 357 | Election to affirm contract requires full knowledge of material facts. | Referenced regarding the effect of disclosure and election in secret commission cases. |
| Johnson v E.B.S. Pensioner Trustees Limited [2002] Lloyds Reps. PN 309 | Equitable discretion applies to rescission for breach of fiduciary duty; no automatic right to rescind. | Applied to illustrate the court’s discretion in granting equitable remedies for breach of fiduciary duty. |
Court's Reasoning and Analysis
The court first addressed the consumer credit appeals. It accepted the Recorder's factual finding that the pre-contractual documentation evidenced an agreement to defer the £295 legal costs payment until termination of the agreement, thus constituting a repayment obligation. The court agreed that the loan agreement contained the prescribed term stating how the debtor was to discharge repayment obligations, as required by Schedule 6 paragraph 5 of the Consumer Credit (Agreements) Regulations 1983. The court emphasized the flexibility allowed by paragraph 5, permitting a combination of terms to specify repayment obligations, and rejected the defendants’ argument that a single term or explicit amount was required.
Regarding the claimant’s appeal about whether the amount of each repayment was stated as required by Schedule 1 paragraph 13, the court upheld the Recorder's conclusion that the agreement did not express the amount of the deferred repayment as a sum of money or a specified proportion of a specified amount, but rather left the calculation to the borrower. This was insufficient under Schedule 1, and thus the claimant’s appeal was dismissed.
On the secret commission issue, the court acknowledged the fiduciary relationship between the defendants and their broker, who was paid both an arrangement fee by the defendants and a commission by the claimant. The broker’s receipt of commission without full informed consent from the defendants constituted a breach of fiduciary duty. The court found that the disclosure document informed the defendants that a commission might be paid, negating secrecy, but did not obtain their informed consent as it failed to specify the amount or clearly seek consent. Therefore, the claimant procured the broker’s breach of fiduciary duty, though the commission was not secret.
The court rejected rescission of the loan agreement as disproportionate and unfair given the fairness of the agreement and the defendants’ compensation by repayment of the commission plus interest. It noted the equitable discretion in granting rescission for breach of fiduciary duty and the absence of a claim against the broker for accounting for the commission. The court awarded the defendants equitable compensation for the breach, including simple interest at the loan agreement rate.
Holding and Implications
The court DISMISSED both consumer credit appeals, affirming that the loan agreement contained the prescribed term stating how repayments were to be discharged but did not comply with the more demanding information requirements as to the amount of each repayment under Schedule 1 paragraph 13.
The court ALLOWED the appeal concerning the secret commission issue, holding that while the commission was not secret, the claimant procured the broker’s breach of fiduciary duty by failing to obtain the defendants’ informed consent. The defendants were awarded £240 plus simple interest at 1.29% per month from the date the commission was received.
The court exercised its discretion not to rescind the loan agreement or the related legal charge, as doing so would be unfair and disproportionate. The direct effect is an equitable compensation remedy for breach of fiduciary duty rather than full rescission. No new precedent was established beyond the application of existing principles to the facts.
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