Johnson v First Rand: Implications for Mortgage UDC Cases

The Supreme Court decision in Johnson v First Rand has reinforced and clarified the legal framework for mortgage undisclosed commission (UDC) cases. The ruling upholds long-standing principles around fiduciary duties, bribery, and disclosure, while also removing ambiguities that previously existed. On bribery, the Court maintained that it remains a strict liability tort, rejecting attempts to introduce causation or rebuttable presumptions. Remedies for claimants therefore remain fully intact. On fiduciary duties, the Court reaffirmed that credit brokers owe fiduciary obligations to borrowers, following the precedent set in Hurstanger and subsequent cases such as McWilliam, Pengelly, Wood, and Nelmes. These duties are defined by loyalty and the requirement to act with undivided loyalty on behalf of clients, distinguishing brokers from commercial dealers who generally do not owe such duties.

A key change came with the Court’s approach to bribery, overturning earlier principles from Wood. The Court ruled that bribery is fundamentally rooted in equity and fiduciary law, meaning a fiduciary who breaches the no-profit rule can be held liable for bribery without the need for agency in the strict sense. Most significantly, the Court set a new standard on disclosure: commission is either fully disclosed or it is not, eliminating the previous concept of “half-secret” commissions. Full disclosure now requires clarity on whether a commission is being paid, the exact value or percentage, the basis of calculation, the recipient, and a clear warning about the potential impact on the broker’s impartiality. Transparency and prominence of disclosure are essential, based on the Office of Fair Trading’s 1997 guidance.

The implications for mortgage UDC claims are considerable. None of the lenders reviewed currently meet this full-disclosure test, meaning the potential pool of viable claims has grown substantially. Cases once considered only partially secret now fall squarely under the category of non-disclosure. The Court also confirmed that unfair relationship provisions remain available to claimants, offering another avenue for redress in subprime markets where commission structures were common. In conclusion, the decision strengthens the borrower’s position: mortgage brokers must act with full loyalty, commissions must be completely transparent, and borrowers retain access to all remedies, including those flowing from bribery. The removal of the half-secret commission concept provides significant clarity and strengthens consumer protection in mortgage UDC cases