Those (including us) tuning in on Friday afternoon to hear the Supreme Court’s decision in the combined appeals of Hopcraft and another v Close Brothers Limited; Johnson v FirstRand Bank Limited (London Branch) t/a MotoNovo Finance; and Wrench v FirstRand Bank Limited will not have been alone. Rarely is a judgment as eagerly anticipated as the Supreme Court’s consideration of three test cases arising out of the purchase of cars on finance has been.

The facts

The facts of all three cases were similar, will be a familiar story to many drivers, and represent a typical motor finance transaction. The consumer purchased a car from a car dealer, and used finance arranged by the dealer, but provided by a third party lender, to purchase the car. The terms of the purchase and finance were agreed. The dealer sells the car to the lender, at a price which reflects the dealer’s cost and profit. The lender and consumer enter into a finance contract for the consumer to pay for the car over a period of time (although the lender and consumer never deal with each other directly). The consumer gets to drive the car away.

The issues in this case arise because the lender also pays the dealer a commission for introducing the consumer to them. Claims on behalf of each of the consumers in this case, along with many (many) others, have since been brought (or complaints raised with lenders and the FOS) by or on behalf of those consumers where that commission payment was either not disclosed at all, or was only partly disclosed, to the consumer.

The issues

The claims were brought by the consumers against their lenders on one or more of the following bases:

  1. That the payment of commissions without full disclosure to the consumers constituted bribes paid by the lender to the broker/dealer.
  2. That the commission payments constituted secret profits received by the broker/dealer in breach of their duty to the consumer, and as the payee of that commission the lender was liable for dishonest assistance.
  3. That the hire purchase agreements were unfair credit relationships, due in part to the payment of commission by the lender, and as such claims existed under s.140A of the Consumer Credit Act 1974 (“s.140A CCA”).

In October 2024, the Court of Appeal shone a spotlight on these cases after upholding the three consumers’ claims. In a decision that the Supreme Court itself describes as coming as a shock to the car finance industry, the Court of Appeal concluded that:

  • Where there had been no disclosure of the existence of a commission arrangement to the consumer, the payment of the commission constituted a bribe;
  • Where there had been disclosure of the fact that commission might be paid, but not of the amount of the commission (colloquially known as a ‘half-secret commission’) the brokers/dealers had breached their duty to the consumer in accepting that commission without the consumer’s fully informed consent, and the lender had dishonestly assisted that breach; and
  • In relation to the one consumer whose claim under s.140A CCA remained, that his credit relationship had been unfair.

While the Court of Appeal’s rationale was based on well-established principles, it was the application of those principles to the motor finance context that led to the unexpected result. In a decision that brings welcome clarity, the Supreme Court has now reversed many of the Court of Appeal’s conclusions, upholding only one of the consumer’s claims, based on the application of s.140A CCA.

The Supreme Court’s findings

Bribery

The Supreme Court has confirmed that there is a distinct tort of bribery, and provided a detailed statement of the justification and legal requirements for such a claim.

Importantly, for such a claim to be established it is essential for there to be a fiduciary duty of loyalty owed by the recipient of the payment (here the broker/dealer) to the claimant consumer. The ‘disinterested duty’ found by the Court of Appeal was not sufficient.

The necessary fiduciary duty will, as is well established, attach to certain defined relationships, but it is not confined to those relationships. The necessary duty may also arise “where one person has performed a role in another person’s decision-making process by exercising judgement or discretion in relation to the interests and affairs of that other person”. Whether that is the case will depend on the specifics of the relationship, and particularly whether the fiduciary undertook or agreed to act in the other person’s interests to the exclusion of their own.

The Supreme Court held that the broker/dealer did not act as the consumers’ fiduciary. Rather, they were acting on an arm’s length basis in pursuit of their own commercial interest, being their interest in selling the car. In circumstances where the car could not be sold without the finance being in place, it was not possible to separate the sale contract from the finance contract, they were each dependent on the other. In those circumstances, the Supreme Court concluded that the parties could not reasonably think that any of the participants to the negotiation was considering anything other than their own interests.

The Supreme Court did note that in none of the cases under consideration did the dealer give any undertaking or assurance to the consumer that it was putting aside its own commercial interest in the transaction to find the consumer suitable finance. This leaves open the possibility that in certain circumstances a broker/dealer might act in a manner sufficient to impose a fiduciary duty (and therefore give rise to a claim in bribery or dishonest assistance). As the three test cases were meant to be typical examples of motor finance transactions, it can be expected that any situation where a fiduciary duty can be established will be the exception and not the rule. This is especially apparent given that the Supreme Court concluded that statements in the three test cases by the dealers that they would seek the most suitable finance package for the customer were insufficient to amount to the dealer undertaking fiduciary loyalty.

Dishonest assistance

For the same reason, the claims for dishonest assistance failed. A breach of fiduciary duty was an essential part of the claim, since it was integral that the lenders had assisted a breach of that duty by the broker/dealer. In the absence of any duty, there could be no claim.

s.140A CCA

By the time the cases reached the Supreme Court, of the three initial claimants, only Mr Johnson’s s.140A CCA claim remained for consideration. This part of Mr Johnson’s claim was upheld by the Supreme Court, all other claims having been decided in favour of the lenders.

S.140A CCA claims look at the fairness of the entirety of the relationship between lender and creditor, and, as such, the factors to be considered are non-exhaustive and very fact-sensitive. The factors seen as key to the Supreme Court’s conclusion in this case can, however, provide some guidance of more general application. The decisive factors for the Supreme Court were:

  1. The size of the commission relative to the credit. The dealer received £1,650.95 in comparison to the total charge to Mr Johnson for that credit (interest and fees) of £3,023.20. In other words, 55% of the amount Mr Johnson was charged for his finance went on commission to the dealer. The fact that the commission was “so high” was a “powerful indication” that the relationship was unfair.
  2. The tie between the dealer and lender was not properly disclosed to Mr Johnson. The lender, FirstRand, had, effectively, a right of first refusal for any finance, whereas the information provided to Mr Johnson (albeit information that he did not read) indicated that suitable finance would be recommended from a range of lenders.
  3. As noted, Mr Johnson did not read the documents provided to him. However, the Supreme Court described him as “commercially unsophisticated” and the documentation did not in any case specifically draw his attention to the information about commissions.

Where claims under s.140A CCA are made out, the powers of the court to remedy that unfairness are wide. For reasons which are not clearly explained in the judgment, the Supreme Court concluded that the appropriate remedy was for the commission to be paid to Mr Johnson, plus interest at an appropriate commercial rate, from the date of the agreement.

What comes next?

These three combined appeals were always intended to be of general application to the industry, and so are of far greater importance than the impact on the specific parties involved.

The FCA has announced, as was expected, that it will be consulting on a compensation scheme for eligible complainants. This is proposed to cover claims relating to discretionary commission arrangements (“DCAs”) (to the extent not properly disclosed), which the FCA banned in 2021. The FCA is also planning to consult on the inclusion of non-DCA arrangements – presumably linked to the question of the unfairness of the credit relationship under s.140A CCA. The FCA is presently estimating that compensation payable under any such scheme is likely to be less than £950 per claimant, far less than the sums that have been advertised to many consumers by or on behalf of the CMCs and law firms which were (at least until last week) looking to build books of claimants for motor finance claims. Whether any such scheme will be opt out or opt in is an open question. The FCA’s current estimates of the total cost to the industry of such a scheme are between £9 and £18 billion.

The FCA will be consulting in October 2025 about the precise shape and scope of that redress scheme. The FCA is anticipating payments under any scheme starting in 2026, though that is likely to depend on the reception any scheme ultimately receives. Motor finance complaints currently sat with firms and the FOS will remain held until December 2025 while the FCA’s consultation progresses.

We will have to wait and see what the response is of the CMCs and firms that were amassing claimants for these claims, many of which already have large volumes of consumers already signed up. The door to unfair relationship claims under s.140A CCA remains open, but requires a fact-specific analysis that make it less suitable for a mass-claims approach. The modest amount awarded to Mr Johnson by the Supreme Court is also likely to make those claims less attractive than the Court of Appeal’s approach suggested they might be (and the FCA’s market analyst briefing on Sunday suggests that the FCA is not anticipating a redress scheme with remedies higher than the commission paid plus interest). DCA commission claims also remain available for pre-2021 finance, though the FCA’s communications (as well as those from other sources including the Solicitors Regulation Authority) have repeatedly cautioned consumers that they won’t need to use a CMC or law firm to participate in a redress scheme.

In the meantime, many lenders had, following the Court of Appeal’s judgment, taken to providing (or requiring brokers and dealers to provide) enhanced information on commission payments to customers taking out new finance. The FCA has stated that it considers these practices are leading to better consumer outcomes. Most likely, the genie of commission disclosure will be remaining out of the bottle, notwithstanding the Supreme Court decision. 

Finally, with all of the focus on motor finance, it shouldn’t be forgotten that broker relationships remunerated (in whole or in part) by commission are not limited to the car finance market. While the bribery and equitable claims were not made out in the test cases, they remain valid legal claims in the right context where a fiduciary duty of loyalty can be established. S.140A CCA claims are also of broader application. It is worth any regulated firms with business operating on this kind of a model considering their commission disclosure requirements in light of this decision, and the FCA’s response in particular. 

The Supreme Court’s decision might have been eagerly awaited, and has certainly brought clarity, but it is by no means the end of the road for motor finance claims.

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