Introducing brokers; commission disclosure, fiduciary duties and public policy

Virtually all of the stated issues were resolved in favour of Medsted at the liability trial and it was found that Collins Stewart had breached its agreement with Medsted causing loss to Medsted.

However, Mr. Justice Teare awarded Medsted only nominal damages, finding that:

• Medsted had breached its fiduciary duty to the Introduced Clients by failing to disclose the precise commission split; and
• public policy required that Medsted be denied any substantive recovery.

Fiduciary Duty and Breach

Mr. Justice Teare held that:

• Medsted owed fiduciary duties to the Introduced Clients; and
• breached such duties by failing to tell the Introduced Clients the precise share of commission and funding rebate paid by Collins Stewart to Medsted.

Mr. Justice Teare concluded that Medsted owed fiduciary duties because the Introduced Clients reposed trust and confidence in Medsted.

However, it is submitted that the Judge erred on this point because he:

• based this finding on the case of McWilliam v Norton Finance notwithstanding that this case involved a contract of agency and there was no agency relationship in the current case; and

did not consider all the facts and circumstances of the case and, in particular, the

• fact that Medsted’s role was to do nothing more than bring Collins Stewart and the Introduced Clients, who were wealthy individuals trading in sophisticated financial products, together.

In addition, we consider that the judge was wrong to find that there was a breach of fiduciary duty in circumstances where:

• he recognised that the Introduced Clients must have assumed that Medsted was receiving payment for its services; and
• the Introduced Clients were aware of, and happy with, the commission and rebate charges as a whole.

Public Policy

Mr. Justice Teare concluded that public policy required the Court to refuse to assist Medsted in profiting from its breach of fiduciary duty to the Introduced Clients by allowing it to recover substantial damages for Collin Stewart’s breach of contract (the ex turpi causa principle).

It is respectfully submitted that the judgment is also wrong on this point as the:

• breach of fiduciary duty found was not between the contractual parties (Medsted and Collins Stewart), but concerned third parties, and the ex turpi causa principle is not engaged in such circumstances; and
• ex turpi causa principle is concerned with claims founded on acts contrary to the public law of the state which engage the public interest (i.e. criminal or quasi-criminal acts), per the decision of the Supreme Court in Les Laboratoires Servier v Apotex and therefore could not be engaged on the findings of fact made by the Judge.

Conclusion

The judgment has far-reaching implications for brokers and those contracting with them.  The Court of Appeal will review the decision in December 2018 and provide a ruling on the question of when a broker will owe fiduciary duties to its clients, as well as the circumstances in which it may be appropriate to deny an entitlement to commission on public policy grounds.