Background
Mrs. Wood has been a farmer in Somerset since 1988. She was also, since 1997, a cheese maker. In Spring 2006, Mrs. Wood wished to purchase a second farm in order to acquire additional acreage for her Buffalo livestock. The second farm had a number of buildings which would not be required so her plan was to develop these and then sell in order to reduce her overall debt level. Mrs Wood was already borrowing from both Lloyds Bank and GE Capital but required more funding for the additional farm and development costs.
The farmer has to be an optimist or he wouldn’t still be a farmer.”
Will Rogers
A financial broker, UK Mortgages & Financial Services Limited (‘UKFMS‘) introduced her to a lender, Commercial First Business Limited (‘CFB‘) which had a connection with the broker and a loan was agreed. The loan enabled Mrs Wood to both refinance her current borrowings and acquire the second farm. Between 2006 and 2008, Mrs. Wood’s borrowing was refinanced on nine occasions. This was mainly by way of short-term loans with the lenders including CFB, Deutsche Bank and UK Country Capital Limited, the latter also having a connection with UKMFS. During this two year period, lending and broking fees of nearly £300,000 were rolled up into these various loans.
Neither Mrs Wood’s existing farm & cheese making business nor the redevelopment of the buildings at the second farm were able to generate sufficient income or profit to service Mrs Wood’s debt and following her default, Deutsche Bank repossessed one of the redeveloped properties to repay its debt and the assignees of CFB’s debt which had been securitised, sought repossession orders on her two farms. Mrs Wood, however, brought a claim against CFB and the assignees, this being that:
- Certain loan documents had been forged;
- Lack of attestation regarding a deed;
- Undue Influence;
- Breach of Duty; and
- Secret Commissions.
Judgement
Mrs. Wood’s claims re 1, 2 and 3 above failed but the judge, Mr James Pickering sitting at the High Court in Bristol in 2019 found in her favour that fees had indeed been paid to UKMFS by CFB that constituted secret commissions and that the former also owed a fiduciary duty to Mrs. Wood which it had not fulfilled. Mr Pickering gave recission orders in respect of the mortgages which CFB’s assignees held over Mrs. Wood’s properties.
Appeal
The two assignees of the CFB debt appealed to the Court of Appeal in 2021 on the basis that they owed no fiduciary duty to Mrs. Wood and, therefore, the recission orders should not have been made. The Court of Appeal, however, upheld the orders because it decided it was not necessary for there to be a fiduciary relationship with regard to civil remedies when secret commissions are involved. For assignees of loan portfolio, this judgement has implications for them as they will not have been involved in the origination process and it is likely, therefore, that as a result of this judgement, additional due diligence will be required before transactions are concluded.
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