Clifford Chance

The Supreme Court's decision in the three closely watched cases relating to motor financing commission arrangements is expected to be handed down in July.

In April, the Supreme Court heard an appeal by banks FirstRand and Close Brothers in the closely watched cases of Johnson, Wrench and Hopcraft, all about motor financing commission arrangements. The hearing follows the Court of Appeal's decision in October 2024, the subject of an earlier Clifford Chance briefing available here.

The Supreme Court's decision is expected to be handed down in July. In this article, we highlight four key points to look out for when the judgment lands.

Background

In each of the three appeals, the Claimants purchased second hand cars from dealers who simultaneously arranged finance for those purchases from the Defendants.

The Defendants paid the dealers/brokers commissions for introducing the Claimants. In Hopcraft, the commission was not disclosed to the Claimants. In Wrench, the Defendant referred to the possibility of a commission in its terms, but the Court of Appeal nonetheless determined the commission to have been "secret". In Johnson, in addition to a similar reference in the Defendant's terms, the dealer/broker supplied a separate document signed by Mr Johnson that also referred to the possibility of commission, but which did not disclose the amount or basis of calculation.

In Hopcraft and Wrench, the "no disclosure" commission cases, the Court of Appeal held the Defendants to be liable as primary wrongdoers in the tort of bribery. In Johnson, the "half-disclosure" commission case, the Court of Appeal held the Defendant/Appellant liable as an accessory to the dealer/broker's breach of duty. The Court of Appeal ordered each Defendant to pay compensation to the Claimants equal to the commissions paid, plus interest paid on those amounts under the relevant financing agreements, plus interest on those combined amounts at an appropriate commercial rate from the date of the agreements. Additionally, in Hopcraft, the Court ordered rescission (unwinding) of the credit agreement.

Where the rubber meets the road: The key issues

Issue 1: What duties are owed by credit brokers to their customers?

Before the Supreme Court, the Defendants argued that the Court of Appeal was wrong to find that the dealers/brokers owed their customers fiduciary duties on the basis that the proper test for establishing an ad hoc fiduciary duty is whether an individual has undertaken to act for or on behalf of another in a situation that creates a relationship of trust and confidence and with single-minded loyalty, to the exclusion of the fiduciary's interest. The Claimants argued that no such "undertaking" is required, and that rather the relevant factor is whether the dealer/broker exercised discretion and choice on behalf of the principal in the principal's transactional decision-making.

Relatedly, the parties contested whether a separate "disinterested duty", which has been referred to previous cases, was owed by the dealer/broker. The FCA, who intervened in the appeals before the Supreme Court, argued that the concept of a distinct "disinterested duty" should be maintained, and would be owed by intermediaries even if they did not meet the test for an ad hoc fiduciary duty.

This is the most significant issue to be resolved by the Supreme Court, with potentially wide-ranging implications for the market, where firms will also need to reconcile the interplay with existing FCA regulation.

Issue 2: Has the tort of bribery been abolished?

In the context of the above debate about the duties owed to customers, the Defendants contended that the 150-year-old tort of bribery should be abolished because the cases from which it arose were wrongly decided. That was opposed by the Claimants and the FCA, who argued the tort is an important deterrent to the special threat of corruption.

Although a relatively fine point of law, the Supreme Court's decision on this point may have consequences for other parts of the judgment, especially with respect to the remedies that may be owed by lenders to their customers.

Again, this decision will have significance beyond motor finance commission claims.

Issue 3: What level of disclosure must brokers and lenders give their customers?

If dealers/brokers owe their customers fiduciary duties, then they will need their customers' fully informed consent before they are allowed to receive commissions for introducing them to lenders.

Although the parties' arguments on this issue were relatively limited, we expect the Supreme Court to provide guidance. One option is to adopt the FCA's position, insofar as its disclosure rules may be considered a "minimum standard".

On the different issue of what disclosure is required to negate secrecy and disengage the tort of bribery (if it still exists), the Defendants and FCA argued the Court of Appeal was wrong in Wrench to find that a commission was secret, even though it had been referred to in a document signed by the Claimant. Clarity on this point from the Supreme Court will be welcomed, so that finance parties can reflect this in their documentation.

Issue 4: What remedies can consumers claim from lenders?

Currently, the potential available remedies include monetary compensation, calculated on a variety of different bases, and rescission (unwinding) of the loan contract.

The availability to consumers of remedies, particularly from the lenders (not brokers), will depend significantly on the Court's conclusions with respect to the nature of the duties owed by the brokers to their customers, and the existence and scope of the tort of bribery. In cases concerning the accessory liability of lenders, at the hearing, there was some debate about the need to prove that a lender had been "dishonest", and whether "blind-eye" dishonesty would be sufficient.

Submissions on remedies were limited at the hearing before the Supreme Court, meaning that it remains to be seen whether the Court will clarify the position with respect to remedies generally, in the context of the overall framework. To that end, the FCA's position on some of these points, including to effectively limit the availability of rescission (particularly "as of right"), and favour compensatory damages, may be attractive.

Getting into gear: After the judgment

The FCA has indicated that it will confirm within six weeks of the Court's decision if the FCA is proposing a redress scheme and, if so, how it will take it forward. Meanwhile, firms will want to review their documentation, policies and procedures, to ensure they are fully compliant.

Clifford Chance is planning an Insights call and a client briefing when the judgment is handed down.