From: lucas.cloveralcolea@monash.edu
Sent: Thursday
7 August 2025 04:27
To: 'Peter
Watts'; obligations@uwo.ca
Subject: RE:
Hopcraft v Close Brothers Ltd: a critique
Just on the single-minded loyalty bit, isn't the
argument of the court (in [91] as you note below) that it's fine to have
conflicting beneficiaries or principals so long as one acts impartially? I'm
not sure why that would change just because the trustee is also a beneficiary,
and can therefore also benefit. Again, there is a duty of impartiality
(consider, for example, the fiasco caused by a widow trustee beneficiary
choosing only to concern herself with her own interests in Re Mulligan).
Of course, in practical terms as others, including myself, have written, this
arguably means that there must be some discernible limit on what benefit a
trustee-beneficiary can have under say a discretionary trust, as otherwise they
could just give everything to themselves and no one could ever challenge it.
Relatedly, as regards the attenuation of fiduciary
duties point, it seems to me that, at some stage, one must either say that a
trustee's duties are so attenuated that there is no real trust, or that the
trustee is not a fiduciary and there is a non-fiduciary trust (there has been
some literature on this in the US). The latter view is, at least on the view
that fiduciary = trustee-like duties, a contradiction in terms (or oxymoron) as
it amounts to saying that the trustee does not have trustee-like duties, so if
one takes the trustee-like understanding of fiduciary duties (as the Court
seems to) one would seemingly have to just say that there is no valid trust at
all in such cases. Perhaps this is what the Court meant when it was discussing
the conflicts of interest point, i.e., at some point the conflict between one's
own interests (even if one can in some cases consider them, e.g., as
beneficiary etc) and that of one's principal is so great that one simply cannot
be a fiduciary at all, attenuated or not. I suppose situations could also arise
where it's impossible to (even in theory) act impartially as between
conflicting principals, and here again we'd say that one was not a fiduciary.
As regards the no remuneration presumption, the
Court's argument would presumably be that as fiduciary duties expanded out from
trustees, and trustees aren't entitled to remuneration without consent, it's
reasonable to apply that presumption elsewhere. This would go hand in hand with
their view that 'Judges have not developed an all-embracing conceptual basis
for the recognition of fiduciary duties. Instead, they have often identified
the incidence of fiduciary duties in the commercial sphere by drawing analogies
with the obligations of a trustee under an express trust' [85]. On that view
(i.e., that fiduciary = trustee-like), it seems reasonable to have the paradigm
case (and the rules that apply in it) as the starting point, and work your way
out from there. Of course, the historical basis for that view could, and has
been, challenged, but it is at least a fairly widely held view.
One could also argue, as I think Langbein did, and
Matthew Hoyle did in another thread on the case (I think?), that in practical
terms professional fiduciaries are always looking out for their own interests,
so you should just align the fiduciary's own interests with that of the
beneficiary, so that its fine that they look out for themselves as long as they
also further the beneficiary's/principal's interests. On that view, we would
have best interest instead of sole interest, and loyalty instead of single-minded
loyalty, but I think the Court addressed (as others also have done) why that
would be a bad idea in Rukhadze.
Anyway, those are just some non-expert thoughts while
I procrastinate...
All the best,
Lucas
Lucas Clover Alcolea
Lecturer
E: lucas.cloveralcolea@monash.edu
W: https://research.monash.edu/en/persons/lucas-clover-alcolea
https://www.linkedin.com/in/lcloveralcolea/
From: Peter Watts <pg.watts@auckland.ac.nz>
Sent: Thursday, 7 August 2025 9:51 AM
To: obligations@uwo.ca
Subject: Hopcraft v Close Brothers Ltd: a critique
With apologies for a long posting..
A first reading of the UK Supreme Court s decisions
in the three-case appeal called Hopcraft v Close Brothers Ltd [2025]
UKSC 33 has tentatively led me to conclusions that match the actual results of
the case but which get there by very different reasoning. Part of this posting
involves the flying of kites and the raising of queries.
In what follows I suggest that even if there had
been a fiduciary relationship between all three claimants and their respective
car dealers, it would not have followed that the payments made by the lenders
to the dealers were in all cases secret commissions (or even semi-secret
commissions). Arguably in Hopcraft and Wrenchthe
remuneration paid to the dealers was only the (objectively expected) reasonable
remuneration due for the services provided by the dealer to the customer in
setting up the finance deal, albeit paid by the lender rather than the
customer. I don t think, in any event, that there was a fiduciary relationship
in Hopcraft; there being no undertaking to promote the customer s
interests in finding finance. Wrench is less clear, given that
the promise to promote the customer s interests was oral only and perhaps
offhand. However, in Johnson I am inclined to think that not
only was there a fiduciary relationship between Mr Johnson and FirstRand, but
the commission paid to the dealer by FirstRand went way beyond reasonable
remuneration and into the territory of breach of fiduciary duty.
I focus on the Johnson case.
In Johnson the claimant entered
into both a hire purchase agreement and a loan agreement with FirstRand Bank in
order to purchase a car, the price of which was 6499. The claimant had been
introduced to FirstRand Bank as a result of an introduction by the car dealer
which was offering the car for sale. As part of the negotiations the claimant
was given a document by the dealer, which he signed but admitted that he had
not read, called a Suitability Document . This document amongst other things
stated:
We will undertake an assessment of your
Demands and Needs for Consumer Finance and provide an illustration of the
Consumer finance product that best meets your individual requirements based
upon the answers you provide.
We do not charge a fee for handling your
application for Consumer Credit, but we may receive a commission from the
product provider.
We do not offer a whole market option for
Consumer Credit; we offer products from a select panel of lenders, details of
which can be seen below:
[list of lenders]
Within our organisation [ie The Trade Centre
Wales] there are a number of finance options we are able to provide. Based on
our discussions and your responses to our questions we will have narrowed down
this selection to the one that may be most appropriate given your personal
circumstances and requirements.
The Suitability Document contained a list of 22
potential lenders that the dealer said it had arrangements with, with FirstRand
listed at number 11. In fact, however, the dealer s own contract with FirstRand
obliged the dealer to give FirstRand a right of first refusal on all credit
sales it was making. Neither the judgment in the Court of Appeal nor that in
the Supreme Court states what percentage of the dealer s sales were effected
through FirstRand, but it is fair to assume the right of first refusal was
effective. Moreover, since the remuneration paid by FirstRand to the dealer was
1650, some 25% of the sum advanced by FirstRand to the claimant and
approximately 55% of the cost of credit, one can infer that, if that was a
typical arrangement, the dealer was incentivised to stick with FirstRand.
The Supreme Court summed up the position as follows
([333]), albeit only when addressing the claimant s claim under Consumer Credit
Act 1974:
Despite those findings, the Supreme Court concluded
that in offering this service the dealer was not undertaking the
single-minded duty of loyalty that is the hallmark of a fiduciary
relationship. As far as the Court was concerned, the dealer was pursuing and
was entitled to pursue its own interests as supplier of cars, and it was not
possible to divide off its role as facilitator of introductions to lenders from
its role as arm s-length seller (see at [279] [280]). The Court went so far as
to state that the dealer was not offering a service at all, under any
contract, or even for a separate reward (see at [269]).
The phrase single-minded loyalty appears 13 times
in the judgment, with the finding that this was not what dealers were
undertaking to customers. Five times the Court implicitly or explicitly drew an
analogy between the dealer and customer and a wine-waiter in a restaurant
recommending to a diner what wines to pair with the meal ([80], [110], [184],
[275], [281]); i.e. there was no undertaking of loyalty.
It is respectfully submitted that neither the
single-minded loyalty argument nor the wine-waiter analogy are convincing. Nor
is it clear that there was no contract, even a collateral one, between the
dealer and Mr Johnson. The Court does, nonetheless, appear to have concluded in
the paragraph set out above that there was a representation made by the dealer,
and it was intentionally false (i.e. fraudulent). A similar conclusion had been
reached by the Court of Appeal: [2024] EWCA Civ 1282 at [121]. See too the
following statement, using the euphemism misrepresentation rather than deceit
(at [281]):
Starting with single-minded loyalty, it is true
that such loyalty is the starting assumption of the law where a party expressly
or implicity undertakes loyally to promote the interests of another. The
expression appears, for instance, in Millett LJ s classic judgment, Bristol and West Building Society v
Mothew [1998]
Ch 1 at 18. But it is only the starting point. That starting point is capable
of express or implied modification without the person ceasing to be a fiduciary
altogether (see Bowstead & Reynolds 23rd ed,
paras 6-039 and 6-056). Self-interest and conflicts of interest are not flatly
inconsistent with a fiduciary relationship, and indeed such situations are
legally and factually legion. Take, for instance, the real estate agent who
normally owes fiduciary duties to the vendor but is taken to be permitted
simultaneously to act for multiple vendors of similar properties in the same
area, and is likely to favour the property where the commission will be
largest: Kelly v Cooper [1993] AC 205 (PC). Kelly was
noticed, but somewhat in passing, by the Court in Hopcraft. Hopcraft also
adverted to the fact that beneficiaries of a discretionary trust often have
opposing interests which the trustees are supposed to serve, the Court adding
that the concept of single-minded loyalty should not be misunderstood (at
[91]). But the Court did not note that trustees may remain fiduciaries even
though they themselves are numbered among the discretionary beneficiaries (for
an example where, as at least losing counsel might suggest (me), the fiduciary
concept was attenuated to an extreme, see Cooper v Pinney [2024]
NZSC 181, [2024] 1 NZLR 935).
Equally, the solicitor or other agent who with
consent (and in the absence of statutory prohibition) acts for both sides to a
transaction does not thereby cease to owe fiduciary duties to each principal.
It is true that such agents must almost always cease to act if they find
themselves in a position where they cannot but injure one principal in helping
the other, under what Millett LJ in Mothew termed the no
inhibition principle (see Bowstead & Reynolds at para
6-056). But that principle is itself an aspect of the persisting fiduciary
obligations that the agent owes both principals.
The sort of promise that the dealer made to Mr
Johnson is the very sort of promise that a credit broker frequently makes to
the broker s clients, and which is recognised as attracting fiduciary
obligations. Again, the Court in Hopcraft seems to have given
nodding recognition to this: see at [269] with reference to Hurstanger
Ltd v Wilson [2007] EWCA Civ 299, [2007] 1 WLR 2351 and Wood v
Commercial First Business Ltd [2021] EWCA Civ 471, [2022] Ch 123. See
too Expert Tooling and Automation Ltd v Engie Power Ltd[2025] EWCA
Civ 292 at [12], where, however, three of the five contracts at issue were
actually signed by the broker on behalf of the customer, reinforcing the fact
that the broker was acting as an agent.
The Court in Hopcraft nonetheless
concluded that things were completely different where the dealer was also
trying to sell a car to the customer. It is true that the dealer s two sources
of profit, one incorporated in the list price of the car and the other a
commission on the credit contract, were interdependent, in the sense that if
the credit contract was not consummated the dealer made no profit on the car.
But this does not seem a good enough reason to treat the objectively clear
promise to find the best type of credit product, and to recommend the most
suitable lender, as not calculated to carry legal consequences, including those
of fiduciary obligation. It may be that the dealer only provided the
Suitability Document because consumer protection laws required it, but it
having been given I don t see why it should not be taken at face value. On its
face it contains a fiduciary promise, in my view.
At the least, the situation in Johnson looks
like a collateral promise to the customer, the consideration for which is the
entry by the customer into the principal contract with the lender. It is highly
probable that the remuneration that the dealer receives from the lender is
indirectly paid for by the customer. If advisers, as opposed to agents, can be
subject to fiduciary obligations, as we know they can, then such obligations
can be attached to the dealer s recommendation of lender. Certainly, the common
law ought to be able to respond to this situation without requiring the
claimant to resort to the Consumer Credit Act. Admittedly, the Court in Hopcraft hinted
as much, proffering as alternatives to breach of fiduciary duty the following
(at [204]): torts such as fraud, conspiracy, causing loss by unlawful means or
inducing a breach of contract.
As for the Court s much-exercised analogy of the
wine recommendation made by the waiter in the restaurant, it is not easy to
swallow; it s more grape juice than shiraz. For a start, both the food and the
wine are being sold by the same party. There is no pretence of the waiter
giving independent advice even in recommending one from among 22 wines. But the
ordinary reader of the Suitability Document would take the promises therein
contained and the ensuing recommendation to contract with one of 22 listed lenders
as representing that serious judgement was being exercised, and exercised on
the customer s behalf.
Notwithstanding the foregoing analysis, it
would not follow that the mere receipt by the dealer of remuneration from the
lender for the services provided would involve a breach of fiduciary duty. That
may be the case even where the fact of remuneration is not revealed to the
customer. Admittedly, these propositions are not easy to square with some of
the case law, but neither have they been fully tested.
It is sometimes suggested that the very fact that a
fiduciary takes remuneration for services performed prima facie involves
profiting from position. Indeed, the Court in Hopcraft suggested
as much in relation to trustees, when it stated (at [84]):
The no conflict rule
and the no profit rule, which we have described, apply to regulate B s
behaviour. Thus, for example, it has long been established that a trustee is
not entitled to remuneration for his or her service without authorisation:
Lewin on Trusts, 20th ed (2020), para 20.001.
It is not in fact the starting point of fiduciary
law that fiduciaries are expected to work for nothing. Neither the conflict
rule nor the profit rule govern the question of a fiduciary s remuneration. The
question of remuneration is simply determined by the express or implied terms
of the contract between the parties. The presumption that trustees are not
entitled to remuneration, if it ever had a solid foundation, is better
explained by the fact that trustees often have a strong family connection to the
beneficiaries making a contrary presumption of entitlement to remuneration
unsafe. The extension of the trustee rule to company directors (though affirmed
in Guinness Plc v Saunders [1990] 2 AC 663) was arguably a
misstep. It is clear that no such presumption applies to agents in general
(see Bowstead & Reynolds, Article 55). If the context suggests
that objectively the fiduciary was not working for free, then the law will
usually imply reasonable remuneration (Bowstead & Reynolds, para
7-004).
Once one concludes that objectively the fiduciary s
services were not being performed for free, it ought not to make a difference
that the principal personally thought the fiduciary was working for nothing,
unless the fiduciary was aware of the principal s misapprehension.
It is admittedly less straightforward, and perhaps
novel, to conclude that where the customer knows, or is reasonably taken to
know, that the counter-party will be paying the reasonable remuneration that
the intermediary would otherwise be entitled to from the customer on a
contractual quantum meruit it is not necessary that the precise remuneration
paid by the counterparty be disclosed to and approved by the customer. Under a
contractual quantum meruit, the sum payable is also at large until what is the
reasonable price is determined by the court. If the counterparty pays only that
reasonable price that should not be regarded as involving the intermediary in
the receipt of a secret commission or other breach of fiduciary duty. There is
nonetheless an incentive on the intermediary and the third party to ensure that
the customer does consent to what is paid because without such consent both
those parties are at peril of being accountable for any excess over the
reasonable remuneration.
One can note that in both of the appeals heard
together in Wood v Commercial First Business Ltd [2021] EWCA
Civ 471, [2022] Ch 123 the credit broker had in fact charged the borrower a
substantial fee for its services. It then received an undisclosed commission
from the lender on top of that remuneration. That was also the case in Hurstanger.
Those cases, therefore, cannot easily be explained as quantum meruit cases.
Arguably, all involved illegitimate payments unless expressly assented to by
the borrower.
In Expert Tooling, in contrast, the
customer appears not to have made any direct payment to the broker for the
services which were plainly not being performed gratuitously. There are grounds
for thinking, however, that the remuneration paid the intermediary may not have
been reasonable in that case. The Court of Appeal s judgment does not discuss
what standard commissions in the industry were, but the actual commission
charged appears to have been over 30% of the cost of the electricity that the
counterparty was supplying to the customer, and the commission was heavily
front-loaded (see at [16]).
The fact that the fees charged Ms Hopcraft and Mr
Wrench were relatively modest might, on the above analysis, lead to a
conclusion that there was no case to answer in relation to them even had there
been a fiduciary relationship between them and their respective dealer.
Reasonable remuneration was called for and was paid. In the case of Ms
Hopcraft, the dealer, in any event, did not purport to be giving her
advice nor selecting on her behalf a suitable lender from a raft of
possibilities. There was no fiduciary relationship in that case. The position
is less clear with Mr Wrench, where orally the dealer was found to have told Mr
Wrench that it would obtain for him the best rate from their panel of
lenders .
However, Mr Johnson s position is different. The
remuneration paid by the lender to the dealer was multiples of what appears to
have been normal remuneration for the services performed, resulting in a
commission of some 25% of the base price of the car (in itself suspiciously
above a guidebook price). If these suppositions are correct, the payments could
not be justified as the type of remuneration the dealer would have obtained on
a quantum meruit. Moreover, given that the dealer had not in fact
carried out the services it was promising, and indeed was stated to have
deliberately created a false impression that it would carry them out, there was
a strong case for forfeiting the dealer s entire remuneration. I have written
elsewhere that English law has got itself into the position where it is has
been forfeiting agents remuneration too readily (see P Watts, Forfeiture of Agents Remuneration in P
Devonshire and R Havelock (eds) Impact of Equity and Restitution in
Commerce (Hart Publishing, Oxford, 2018) 203), but arguably there was
a total failure of consideration in Mr Johnson s case, reinforced by the
deception involved.
That leaves the position of the lender in Mr
Johnson s case. It is not easy to tell from the judgments of either the Court
of Appeal or the Supreme Court whether FirstRand had knowledge of the
Suitability Document. If it did not, it may not have known that, on the
analysis put forward in this casenote, the dealer had assumed fiduciary
obligations to the customer, nor that the customer had received a deceptive
(dishonest) document, if there were to be liability on a basis other than being
a party to a breach of fiduciary duty. However, the lender must be taken as
knowing that the payment it was making to the dealer could not be characterised
as reasonable remuneration given the size of the commission in relation to the
amount of credit being advanced.
I finish with a query directed to the main ratio
in Hopcraft, namely that only fiduciary relationships attract the
law on secret commissions. Putting aside the criminal law (the Bribery Act 2010
UK doesn t seem to turn on the recipient of a benefit being a fiduciary), how
do we deal with backhanders paid to relatively low-level but full-time
employees? Payments to the public hospital admin person to jump the
queue for medical treatment, where that person is intended only to be the
scribe for prior medical triage decisions. Payment to the mechanic to have
one s car serviced more quickly... Are we supposed to use the tort of
interference with contractual relations to get at the payer? I ve never been
able to shake off the feeling that Lumley v Gye is a dubious tort.
Peter.