Court of Appeal reaffirms stance on fiduciary duties in half-secret commission cases

Some years it seems like there are no cases of any real importance. 2025 is not one of those years.

Last week a strong Court of Appeal doubled down on a key element of the landmark Johnson v FirstRand decision on secret commissions in motor finance (about to be heard before the Supreme Court). In Expert Tooling and Automation Ltd v Engie Power Ltd [2025] EWCA Civ 292 the Court held that an energy broker owed fiduciary duties not to accept half-secret commissions for broking an energy supply agreement without getting fully informed consent from its client.

Although the client was aware that the broker would be paid a commission, it was not told the amount (which was substantial) or that the commission would be funded by increasing the energy unit rate paid by the client (an arrangement not dissimilar to the discretionary commission agreement in Johnson).

The key findings were:

Fiduciary duty: the broker, as the client’s agent, owed strict fiduciary duties including not profiting from the relationship without fully informed consent. The Court held that the broker breached this duty by failing to disclose material facts about the commission structure.
Informed consent: The Court confirmed that a principal’s informed consent requires full disclosure of all material facts – not mere awareness that a commission would be paid. The fact that the client could have asked for more information did not excuse the lack of disclosure.
Accessory liability: the energy supplier, which was the party paying the commission, could only be liable for procuring the broker’s breach if it acted dishonestly. As the client had not pleaded dishonesty or run that case at trial, the claim failed on that procedural point.
Limitation: The Court held that the cause of action accrued upon payment of the commission, not entry into the underlying contract. The decision of the first instance judge that the claim in respect of the first energy supply contract was time-barred was therefore overturned.

With the Supreme Court about to have its say on the Johnson appeal, this decision underlines the clear line at Court of Appeal level that brokers will commonly owe strict fiduciary obligations requiring clear, proactive disclosure of commission arrangements that may be said to give rise to conflicts of interest. That disclosure needs to be fulsome in order to obtain informed consent.

More hopefully for half-secret commission payers (be they lenders or energy suppliers) the judgment also confirms that accessory liability in equity (where third parties are said to have induced a breach of fiduciary duty) requires proof of dishonesty, consistent with established principles in Brunei and Twinsectra. This issue will inevitably be a key battleground in the Johnson appeal and other cases targeting the payers of half-secret commission instead of the receiving brokers.

The decision may well be subject to further appeal given the pending Supreme Court consideration of Johnson.

High Court upholds use of omnibus claims in mass motor finance litigation

By Chris Webber on March 24, 2025 Posted in Banking, Dispute Resolution

A recent High Court decision in claims brought by thousands of claimants against motor finance providers has reaffirmed the validity of using omnibus claim forms in large-scale consumer litigation. The ruling has implications both for the many motor-finance mis-selling claims pending before the courts and also for mass claims in a variety of other contexts.

Background

The case involved eight omnibus claim forms issued on behalf of over 5,800 claimants against eight defendants. While the claims were at an early stage procedurally, the core allegations were that the defendants had paid undisclosed, variable commissions to motor finance brokers (car dealers), creating conflicts of interest which the claimants argued rendered the ensuing credit agreements unfair under Section 140A of the Consumer Credit Act 1974 (CCA).

Shortly after the claims were issued, and before filing any defence, the defendants objected to the use of omnibus claim forms and invited the court to sever the claims, such that the claimants’ solicitors would need to issue a separate claim form (and pay a court fee) for each claim.

Initially, a County Court judge ruled that the claims should be severed into individual cases, following Abbott v Ministry of Defence [2023] 1 WLR 4002. This would have required a separate claim form to be issued (and court fee paid) for each case. The claimants appealed, arguing that the claims could and should more appropriately be commenced under omnibus claim forms, as contemplated by CPR 7.3 and CPR 19.1.

Key Legal Considerations

CPR 7.3 allows a single claim form to be used for multiple claims if they can be “conveniently disposed of” in the same proceedings. CPR 19.1 provides that any number of claimants may be joined as parties to a claim.

In Morris v Williams & Co Solicitors [2024] EWCA Civ 376 the Court of Appeal clarified that no gloss should be put on the words of CPR 7.3 and 19.1, which should be given their ordinary meaning. The exclusionary “real progress,” “real significance,” and “must bind” tests proposed in Abbott were factors to consider but should not be viewed as exclusionary tests – the omnibus claim form jurisdiction was not as restrictive as the Group Litigation Order regime in CPR 19.21-28, and should not be treated as “GLO-light”. Abbott was overruled.

Factors Supporting Omnibus Claims

The High Court carried out a detailed analysis of the factors to be taken into account in deciding whether the claims could conveniently be disposed of together per CPR 7.3. Key points cited in favour of allowing omnibus claims to proceed included:

The large number of claimants and small number of defendants.
The claims arose from the same or similar transactions, with broadly common allegations and the same legal causes of action, raising a number of common legal and factual issues.
The likelihood that case managing the cases together by way of lead or test cases would likely facilitate the disposal of many or all of the following cases. Whereas if separate claims were issued it would be random chance which claims were heard first and whether they were appropriate test cases.
Managing the claims together would be more efficient and just, in line with the CPR 1.1 overriding objective. Costs would likely be saved overall, and court time would likely be reduced. The imbalance of financial power between individual claimants and defendants would be mitigated. There were advantages to omnibus claims management in terms of the timing and usefulness of disclosure, and the availability of expert evidence.

Practical Implications

For Defendants facing mass claims this ruling will be a concerning precedent for the use of omnibus claim forms by claimants as a strategy, with obvious advantages for claimant law firms in terms of cost, use of case management applications to gain early disclosure, and selection of common issues and test cases.

For Claimants and their advisers the decision will encourage the use of omnibus claims over the impracticality of litigating individual cases, and the relative restrictiveness of the GLO regime.

For the Courts omnibus claim forms could see large volumes of individual claims taken out of the County Courts and case managed collectively and in a less haphazard fashion than has so far been the case, with potential for many following cases to be settled out of court once lead claims have been determined. This may help with significant delays and backlogs often experienced in the County Courts.

Wider Significance

The significance of this decision in the context of motor finance claims may to some extent be rendered moot by the outcome of the Supreme Court appeal in Johnson v FirstRand and the FCA’s decision on a whether and to what extent to impose a consumer redress scheme. But in reaffirming the broad scope and flexibility of CPR 7.3 and 19.1, the ruling may pave the way for more mass claims in financial services and other contexts.

Motor finance claims – the current state of play

By Chris Webber on December 17, 2024 Posted in Banking, Mis-Selling, Motor finance

The prospects of claims against motor finance lenders continues to develop rapidly as courts, the Financial Ombudsman Service, and the FCA continue to grapple with the issues raised by the large volume of cases being initiated. Here’s the current state of play at a glance:

The Johnson v Firstrand Bank Court of Appeal decision in October 2024 recast the industry consensus on exposure to secret and half-secret commission claims. In short, the Court ruled that the motor dealers in acting as credit brokers took on a “disinterested duty” to find a suitable and competitive (or in some cases the best) finance deal available from their panel of lenders. That duty conflicted with their interest in receiving commissions from lenders. In cases where the commission was not disclosed at all (a “fully secret commission”) the lenders had primary liability in the tort of bribery for causing the dealers to breach their duty. In “half-secret” commission cases, the Court ruled that dealers had a parallel fiduciary duty, which required them to obtain “fully informed consent” before accepting a commission. Where they failed to obtain that consent, lenders could be liable in equity as accessories to the dealer’s breach of fiduciary duty. The Court also treated cases that might previously have been viewed as half-secret commission cases as fully secret, finding that the partial disclosure had been insufficient to negate the secrecy.
On 11 December 2024 the Supreme Court granted permission to appeal all three of the joined appeals in Johnson, and indicated that they would be listed before Easter 2025.
The High Court has today (17 December 2024) ruled against the lender in R (Clydesdale Financial Services Ltd t/a Barclays Partner Finance v Financial Ombudsman Service Ltd. That case was a judicial review challenge to a FOS decision finding a lender liable for breaching FCA Rules (specifically CONC 4.5.3R) requiring disclosure of (in the 2018 version) the existence of commissions on consumer credit transactions, and in the 2021 version the existence and nature of the commission. In the case before FOS, the lender had paid both a small, fixed commission and a larger discretionary commission, linked to the interest rate agreed with the customer. The High Court treated these as two separate kinds of commission, the existence of both of which were required to be disclosed even under the 2018 version of the CONC rule. The Court also decided that representations about the commission were representations “in relation to goods” within the deemed agency provision in s.56(1(b) of the Consumer Credit Act 1974 (“CCA”). Lastly the Court upheld the FOS approach to compensation, that if the commission model had been properly disclosed, the customer would have negotiated the interest rate down to the floor level (i.e. the rate at which the dealer would receive no discretionary commission). The Court rejected the submission that this approach was irrational.
The lender has already indicated an intention to seek permission to appeal this decision.
The FCA launched a review of historical motor finance DCAs in January 2024. In doing so it suspended the usual time periods for regulated firms to provide final responses to complaints about motor finance where a DCA was involved, and for consumers to refer complaints to FOS. Those suspensions were extended again in September 2024 to run until 4 December 2025. The FCA is also consulting on a similar extension for non-DCA motor finance complaints, either to 31 May 2025 (after the Supreme Court decision in Johnson), or to 4 December 2025 (to align with the DCA complaints extension). The outcome of that consultation will be published on 19 December 2024. The FCA also says it plans to set out its next steps on DCA complaints in May 2025. We are anticipating a consumer redress scheme, probably under s.404 FSMA.

We are aware of enormous amounts of activity on all sides in response to these developments. Claims management firms and claimant-side lawyers and claims introducers are very active in recruiting claimants and pursuing claims via a range of strategies. A number of funders are actively seeking to deploy capital in support of claims. And aside from the lenders directly involved in the active cases and the FCA’s review, lenders and motor dealers are assessing their exposure to claims and contingency planning for the various scenarios as the cases reach the higher courts and the FCA crystallizes its views.

If you would like to discuss any of these issues, please get in touch.

FCA marks principal firms’ homework on appointed representatives – must try harder

By Chris Webber on September 12, 2024 Posted in Fraud and Financial Crime, Investigations, Investment Management, Mis-Selling, Regulation

The FCA has been focused on appointed representatives (“ARs”) for many years now, dating back to its 2016 and 2019 thematic reviews. It grudgingly accepts that the AR regime has some cost efficiency, competition, and market access benefits. But it sees ARs as high risk, because it perceives that often principal firms undertake inadequate due diligence before appointing ARs and are lax with their ongoing oversight. It rightly observes that the AR regime has evolved from its original use by insurers and other product providers to distribute their products via a network of ARs, to encompass a wide range of models such as regulatory hosting and networks, and products and services ranging from retail and insurance to asset and investment management.

Some high-profile AR failures have not helped. In its 2021 consultation paper the FCA notes that principals of AR firms generate 50-400% more complaints and supervisory cases than firms without ARs, and 61% by value of FSCS claims. We have advised principal firms on a number of such cases in recent years.

Setting firms’ homework

Those misgivings led to new FCA rules introduced from 8 December 2022. The gist of those rules was to clarify and strengthen the responsibilities and expectations on principal firms, and to require them to provide more information to the FCA on their ARs. The requirements included:

A one-off information gathering exercise on existing ARs, the rationale of the AR relationship, details of the AR’s business, and the financial and other arrangements with the AR.
Providing the same information to the FCA 30 days before onboarding any new AR, and updating information on existing ARs as it changes.
Annual reporting of AR complaints and the AR’s revenues (both regulated and unregulated).
Notifying the FCA when a firm intends to provide regulatory hosting services.
Enhanced oversight of ARs, ensuring the principal firm’s systems and controls and resources are sufficient. The FCA says a principal’s oversight should be “of a comparable standard as if they were an individual directly employed by the principal”.
Annual review of ARs including reviewing the fitness and propriety of the AR’s senior managers, the AR’s financial position, and the adequacy of controls and resources in place to oversee the AR.
Ad hoc review where there are changes to the AR’s business model and/or senior management team, or a significant increase in complaints.
Annual self-assessment of how the principal is meeting its responsibilities in relation to all its ARs.

Class test

Now the FCA has “tested” 251 firms (c.10% of all principal firms) on their approach to these new obligations, by way of a telephone survey. It also selected 23 firms for a more in-depth assessment. The samples were randomly selected to include firms with many or few ARs, and from a range of different sectors. The FCA published the report card from that exercise last week.

The cohort was damned with the faint praise that they had “made some effort” to comply with the new rules. The class swots were “keeping clear documentation to show compliance with the FCA’s enhanced rules and using a broad range of checks and information to oversee and monitor ARs’ activities”. However, the dunces were chastised for a “tick box approach” to compliance, relying on basic information like website checks or self-declarations from ARs.

One in five firms had not done their self-assessment or annual review homework at all. Of those that had, half were “good quality” (in line with the requirements of SUP 12.6A). Half the class were not regularly reviewing their AR agreements. A third of firms were not using data or management information to monitor whether ARs were sticking within the scope of their AR agreements. And most firms had not changed their AR onboarding or termination procedures since the rules were introduced.

Studies suggest that 65% of people think they are smarter than average. Similarly, 96% of telephone survey participants said they were “very confident” they were effectively implementing the new rules and guidance. The FCA dryly discerned “some over-confidence” in firms’ high self-esteem.

Gold stars were awarded for various examples of good practice in relation to self-assessments, annual reviews, ongoing monitoring and oversight, and approach to onboarding and “offboarding” ARs. Principal firms wishing to avoid detention or a visit to the headmaster’s office should read those, and the countervailing examples of “areas for improvement” carefully.

Next term

Our own recent experiences suggest many principal firms would be wise to prioritize prophylactic improvements to their AR processes, procedures, systems and controls. Oversight of ARs is identified as a focus area in the FCA’s Strategy 2022 to 2025 and so we will certainly continue to see heightened FCA supervisory activity around ARs (including s.165 requests, supervisory visits, and skilled person reviews), and in some cases enforcement action, for the foreseeable future.

APP fraud – might banks have a “retrieval duty” ?

By Christian Toms on April 4, 2024 Posted in Banking, Dispute Resolution, Fraud and Financial Crime

Following on from our Blog post and article from November of last year that looked at the potential liabilities of banks and related parties in the context of authorised push payment (“APP”) frauds, the recent decision of Master Brown in CCP Graduate School Ltd v National Westminster Bank PLC & Anor [2024] EWHC 581 (KB) has again seen the court grappling with the question of the liability of receiving banks, this time considering the potential existence of a “duty of retrieval”.

FCA’s Consumer Duty good practice and areas for improvement update – Constructive Criticism or Hard Discipline?

By Paul Anderson on March 26, 2024 Posted in Regulation

When considering the FCA’s enforcement of Consumer Duty, it could be likened to a school teacher attempting to discipline a class. The FCA so far is attempting to retain the authority akin to a headmaster with an iron fist, rather than a flailing substitute teacher with a “kick me” sign attached to their back. Whether the FCA has managed to control its proverbial “class” of firms is yet to be seen, although it is issuing out mixed reviews at parents’ evening for some, and detentions for others.

Anatomy of a fraud series – Powers afforded by search and imaging orders

By Christian Toms on January 25, 2024 Posted in Dispute Resolution, Fraud and Financial Crime, Investigations

Search orders

Search orders are a form of interim, mandatory injunction which require a respondent to allow the applicant’s representatives to enter the respondent’s premises and search for, copy and remove documents or material for the purpose of preserving evidence and/or property which is or may be subject to an action.

Search orders are, therefore, considered to be one of the most draconian orders a court can make, and particularly so as a respondent may be held in contempt of court for failing to comply with this type of order. Accordingly, the court will only grant a search order where it is deemed necessary in the interests of justice, and case law and the Civil Procedure Rules have put in place various safeguards for respondents, including the duty upon the applicant to give full and frank disclosure and a need to give an undertaking in damages.

The Rise of the Pig Butcher

By Ian Debbage on November 24, 2023 Posted in Crypto-Assets, Fraud and Financial Crime

The “pig butchering” scam is not new but has enjoyed a rapid rise in recent years. So much so, that virtually everyone reading this blog will have been an intended mark at some point, probably without knowing it. Indeed, if you have ever received a message from an unknown number with a random message that apparently wasn’t intended for you such as “sorry I missed my appointment” or “Hi mum, this is my new number” then that probably wasn’t an innocent mistake, it was the start of the long con of the 2020s.

WHO PAYS THE PRICE OF AUTHORISED PUSH PAYMENT FRAUD?

By Christian Toms on November 22, 2023 Posted in Banking, Dispute Resolution, Fraud and Financial Crime

Following on from our recent Blog post about UK Finance’s half-yearly fraud update, in an article published today with the International Banker we look at the increasingly common authorised push payment (APP) fraud and consider what can be done and who might be liable?

Too soon to move on? Supreme Court changes limitation in secret commission cases

By Chris Webber on November 15, 2023 Posted in Banking, Mis-Selling

The Supreme Court has today provided important clarification on when “deliberate concealment” or “deliberate commission of a breach of duty” by a defendant will extend the limitation period for bringing claims.

The decision is bad news for financial services firms affected by PPI mis-selling claims and other claims in which firms are accused of making secret commissions on financial products, such as interest rate swaps and other derivatives.