Wilson and another v Hurstanger Ltd
Court of Appeal 4 April 2007

Mr & Mrs Wilson were in arrears with their first mortgage, and contacted a broker to get a second mortgage. The broker made it clear that he would charge a fee for the loan, but he also received a commission from the lender which was not disclosed. During a repossession hearing, the defence claimed there was conflict of interest between the broker and the borrowers, since he was being paid by both sides. It was also claimed that a legal fee of £295 which was required to be paid up front but was alternatively allowed to be paid at some unspecified date breached Schedule 6 paragraph 5 of the Consumer Credit (Agreements) Regulations, which required creditors to state the amount of each payment or “the manner in which it may be determined”; however, Schedule 1 paragraph 13 only allows this flexibility where it is not possible to state actual repayments.

The County Court did not consider the secret fee to be a serious matter, on the basis that the amount was small (£240) and Mr Wilson was aware that such payments might be made. However, the court held that the failure to say how the legal fee would be paid was the result of “self-interested sloppiness” and thus the creditor was culpable to give compensation under Section 127(1).

Both parties appealed and the Court of Appeal carried out a detailed consideration of what had transpired.

They considered at length the secret commission and said it was a serious issue, commenting that where not notified, it would represent a fraud against the borrower. Here the borrowers signed a form which indicated there might be a commission. However this was not sufficient to make it clear that the broker would not comply with his fiduciary duty to the borrowers. Hence court had  the jurisdiction to decide the limit of liability. On these facts, they resurrected the original agreement but compensated the borrowers the amount of the commission plus simple interest at the charged rate. Regarding the legal fee, they held that the County Court was wrong – since it was clear that, if not paid, the fee would be added to the loan and charged at the agreement’s monthly rate of 1.29%. They thus allowed the repossession process to re-start.

(c) Bob Imrie 12/01/2010