Key takeaways for brokers and lenders arising from the Court of Appeal judgment in Johnson v Firstrand Bank Ltd

In this article, we highlight seven key takeaway points from the Court of Appeal's recent judgment in the Johnson v Firstrand Bank Ltd case, which was the joint determination of three appeals - Johnson, Wrench and Hopcraft. 

The key takeaways refer to the level of information brokers must disclose to consumer and regulated borrowers regarding commissions they receive from lenders, and when lenders might become liable for broker shortcomings. 

1. Terms and conditions, simply stating that commission ‘may or will be paid’ will not be sufficient to nullify prohibitions on secrecy. Generic statements will not suffice and such provisions have been found not to constitute effective disclosure. 
2. Brokers must ensure that such a borrower has a proper understanding of the commission arrangements in place, and specifically whether those commission arrangements have impacted on the broker's recommendations to the borrower. The disclosure must be clear and complete, allowing borrowers to understand any potential bias in the broker’s recommendations.
3. The court considered whether a lender would only become liable by way of an accessory liability if a fiduciary duty was owed by the broker. The court held that while a fiduciary duty would strengthen any claim, it isn’t strictly necessary. 
4. Where a fiduciary duty exists a lender may become liable if it’s found that they were aware, or ought to have reasonably be aware, that the broker has failed to meet their disclosure obligations to the borrower. 
5. The court clarified in certain terms that brokers do owe a fiduciary duty pursuant to which they are obliged to secure fair terms for such borrowers. Brokers are required to act transparently and in the borrower’s best interests at all times. 
6. The court found that lenders must implement procedures to ensure that brokers satisfy their disclosure obligations concerning commission arrangements. 
7. In the event that a lender fails to ensure that brokers are adequately disclosing commission arrangements and it’s found that the commission arrangement disadvantages those borrowers, the lender may become liable to repay the commission. 

If you would like to discuss this decision and the ramifications of it on you or your business please don’t hesitate to contact Anusheh Burcher, or a member of the commercial litigation or banking and finance team.