Forgery, secret commissions, a s140 unfair relationship – can a mortgage be rescinded?

Judgment has recently been handed down in the case of Frances Wood v Commercial First Business Ltd (in Liquidation) & Business Mortgage Finance plc. The court found that a commission paid to a broker amounted to a “secret commission” allowing the mortgage to be rescinded and entitling the borrower to recover the said commission.

The lender in this case was not a standard lender but specialised in providing unregulated secured loans to commercial borrowers. It only provided mortgages through an intermediary (a broker). In the circumstances, the intermediary received an arrangement fee directly from the borrower as well as commission from the lender.

Amongst other things, the borrower argued she had not been made aware of the commission, in breach of the brokers' standard terms and giving rise to an unfair relationship under s140 CCA.

The payment of secret commission is a form of bribe and therefore treated as a special category of fraud which entitles the borrower to rescind the relevant contract if a claim is made out.

Whilst on this occasion such a claim did succeed, other parts of Mrs Wood's claim in relation to undue influence and forgery were not made out. The case provides substantive commentary and reasoning of many of the aspects banks and banking lawyers come across on a daily basis and is a worthwhile read.

If you are interested in the issues arising or would like any guidance, please contact me or Sian Phillips.