The Court of Appeal has agreed to hear an appeal that is expected to involve it addressing the legal foundations of civil claims in respect of undisclosed or “secret” commissions – and what that means for the conduct of proceedings pursuing such actions.
The High Court decision being appealed (Commission Recovery Ltd v Marks & Clerk LLP [2023] EWHC 398) is discussed here on our Litigation Notes blog. The underlying action involves claims that two defendants (a firm of patent / trademark attorneys and an associated partnership) received secret commissions for referring the attorneys’ clients to a third party service provider. The proceedings were brought as an “opt out” representative action under CPR 19.6, on behalf of all the clients in respect of whom a commission was allegedly received. The claimant was not itself one of those clients but is suing as the assignee of one of them.
The primary finding in the decision was that the proceedings satisfy the requirement that all class members share the “same interest” in the claim. This was one of the first decisions to consider that “same interest” test since the Supreme Court’s seminal decision in Lloyd v Google [2021] UKSC 50 (discussed here), and takes what may be seen as a liberal approach in allowing the representative action procedure to be used despite potentially significant differences between the claimants’ individual circumstances. The appeal will therefore be watched closely in that regard.
However, it will also be of interest regarding secret commissions actions more generally. That is because applying the “same interest” test requires a court to consider the legal and procedural features of the particular type of action involved. Accordingly, just as the Supreme Court’s decision in Lloyd v Google added to the authorities not only on the representative procedure but on damages claims under the Data Protection Act 2018, the appeal in this case is expected to add to the appellate case law on claims regarding undisclosed commissions.
In particular, the features of secret commissions actions considered by the High Court, and which the appeal may expand upon, include:
- The legal status of an undisclosed commission. On the basis of prior authority, the High Court accepted that, at least as between a principal and their agent, an undisclosed commission constitutes property – and so may be pursued via a proprietary claim to the commission itself, rather than just a via a personal claim against a defendant, such as for breach of contract. Because the assignment of rights to the claimant in this case therefore included an assignment of property, rather than of a bare right to litigate, the court held that the rules against champerty (ie trafficking in litigation) had no application here. However, beyond that context, the legal status of an undisclosed commission in any case is an important question and may affect a wide range of legal and procedural issues, including the type of relief available, the evidence required, limitation issues, and jurisdictional questions.
- The nature of the duty that an agent must have owed its principal in order for its non-disclosure of commissions to be actionable. In particular, whether it is necessary for a claimant/principal to establish that the duty in the particular case qualified as a fiduciary duty under the usual criteria. (The High Court’s answer was ‘”no”).
- What degree of knowledge by the claimant will be sufficient to establish a defence that a commission was adequately disclosed.
- The limits on the need for a claimant/principal to provide disclosure of documents in secret commission cases
- The different types of relief potentially available, and how any monetary award should be calculated
- The relevance of whether a commission was fully secret (ie. the principal was unaware that a commission would be received) or half-secret (ie. the principal knew that commission could be received but did not know the details of specific instances and did not give its informed consent)
The appeal is due to be heard on 21 November 2023. We will report on the outcome in due course.
For further information, please contact:
Jan O’Neill, Herbert Smith Freehills
jan.oneill@hsf.com
