Brokers PI: disclosure of commission and competing in tenders

United Kingdom

The Commercial Court recently considered the disclosure of brokers’ commission and the fiduciary duties owed by brokers to clients when asked to quote for the renewal of cover.

The Court confirmed:

  • Where a broker has given full and frank disclosure of his earnings, and those earnings were reasonable, there can be no question of the broker being required to account to the client for any of those sums.
  • Where a broker is invited to participate in a tender usual contractual principles will apply and the broker is not obliged to participate if he chooses not to. Where exclusivity in this process is offered there is unlikely to be any retainer, and hence any necessity to quote, until the broker and the prospective client have reached agreement on the essential terms of that retainer which will almost certainly include the parties’ remuneration.

The facts
Aon placed reinsurance cover for UIC in respect of its insurance of the Libyan state owned oil corporation. When invited to obtain a quotation for the renewal of the cover the broker declined, instead providing a successful quotation to another Libyan insurer.
UIC alleged that Aon had misrepresented and concealed its earnings in relation to the first year of cover and that the broker was in breach of its fiduciary duties when the relevant policy came up for renewal and Aon decided to submit a quote to a competitor of UIC.

The Court found:

  • Full disclosure at an early stage had been made by Aon and there had been no misrepresentation of the broker’s earnings.
  • There was no relevant contract between the broker and UIC to present a quote for the renewal and nor did the broker owe any fiduciary duty to UIC.
  • UIC’s witnesses’ oral evidence (raising new and unrecorded oral discussions in an attempt to “overcome” the difficulties that they faced with the contemporaneous documents) was both contrived and untruthful. This was sufficient to result in an award of indemnity costs against UIC.

Comment

The case turned on its own facts but reinforces that whilst full disclosure of earnings will be a defence to any claim that a broker has obtained a secret profit, it is also important that a broker does not misrepresent his earnings. If he is going to tell a story he must tell the whole story. The current practice of commission disclosure in the London market is not consistent. Some of the larger brokers prefer complete transparency but this is not an approach that is prevalent throughout the market. This has resulted in what some have described as an “uneven playing field”, which is something that the FSA is currently reviewing.

CMS Cameron McKenna LLP acted for the broker in successfully defended the claims.


Further reading: United Insurance Company of Libya –v- Aon Limited [2007] EWHC 1583 (Comm)