The Supreme Court decision on motor finance commission claims

 Introduction

The Supreme Court of the United Kingdom released its judgment in three linked cases relating to charging consumers commissions on motor finance arrangements. The judgment overturns the Court of Appeal’s findings in 2024 that consumers were owed a fiduciary duty and were entitled to redress. However, the Supreme Court upheld the Court of Appeal’s finding that such arrangements were unfair to the consumer under the Consumer Credit Act 1974. The outcome is a partial win for the motor finance industry but one which will not extinguish all potential claims. Below we examine the Supreme Court judgment and its consequences.

Background

The three cases of Hopcroft, Wrench and Johnson, heard together, all involved consumers purchasing a motor vehicle from car dealerships which also arranged hire purchase finance with a third-party lender (Johnson and Wrench used FirstRand Bank Limited and Hopcraft used Close Brothers Limited). Unknown to the consumers, the motor dealer was in each case paid a commission by the lender, which was ultimately added to their loan. The cases therefore turned on the legality of secret commissions and the remedies available where such commissions are paid.

In the case of Hopcroft, the finance party Close Brothers accepted that there was a secret commission paid to the car dealer for referring the financing opportunity. In Wrench and Johnson, the finance parties disputed the secret commission due to partial disclosures in various documents provided to the customer.

The Court of Appeal judgment

The Court of Appeal heard the three cases together on appeal from the County Courts, finding in each case that the consumers were entitled to relief as the payment of the commissions had not been disclosed to them either by the motor dealer or the finance provider. The Court of Appeal focused on two authorities which it cited as binding on it: Hurstanger v Wilson and Wood v Commercial First Business Limited. It concluded:

·       The motor dealers acted as credit brokers in arranging finance for the customers.

·       The relationship between credit broker and customer was a fiduciary relationship.

·       In each case the payment of a commission to the broker by the finance provider was a conflict of interest, and the informed consent of the purchasers was required to permit such conflict.

·       As the payment of commission was secret in Hopcraft and Wrench, the lenders were liable as primary wrongdoers. In Johnson’s case there was sufficient disclosure of the payment of commissions to negate secrecy, but it was insufficient to procure the purchaser’s informed consent; the lenders were liable as accessories for procuring the broker’s breach of fiduciary duty by making commission payments.

·       Mr. Johnson also succeed in his claim under section 140A of the Consumer Credit Act 1974 (‘CCA’) on the basis that his relationship with FirstRand Bank was unfair.

The Supreme Court judgment

In a strong rebuttal of the Court of Appeal’s decision, the Supreme Court disagreed that there was a fiduciary duty on the car dealers in relation to the arrangement of finance for the car purchasers.  Since there was no fiduciary duty, the claim under the tort of bribery could not succeed and equitable remedies were not available to the purchasers.

However, Mr. Johnson’s claim under section 140A of the CCA was allowed on the grounds that there was an unfair relationship.

·       The fiduciary duty

The Court of Appeal’s judgment on the application of a fiduciary relationship turned    on their view that the car purchasers were vulnerable by reason of their economic circumstances which made them reliant on borrowing to purchase a car. Such vulnerability meant that the car dealer, acting as credit broker, were in a position to take advantage of them and so there was a ‘reasonable and understandable expectation that they would act in their best interests, that they owed them fiduciary duties.’

The Supreme Court, however, declined to extend the application of fiduciary relationships to commercial transactions in this manner. It distinguished Hurstanger and Wood as the brokerage services provided in those cases were distinct and separate from the main transactions, whereas in the present cases the credit brokerage was part of the wider transaction embedded in the sales of the cars. One important distinction highlighted was that the car dealers were entitled to act in their own commercial interest in achieving car sales, acting at arm’s length from the interests of their customer.

The finding that there was no fiduciary duty negated further discussion of a number of issues considered by the Court of Appeal, including the requirement to disclose ‘secret commissions’, since the ‘no profit ‘rule also fell away if the relationship was not fiduciary. Equally the question of restitution against the payer of a bribe and claims for rescission did not need to be answered in the judgment.

·       The tort of bribery

The Court of Appeal claimed a lack of direct authorities which would apply easily to the facts of these cases. The payment of a secret commission was akin to a bribe, according to Wood, and was an actionable wrong at common law and equity, giving rise to remedies including recission.

This prompted the Supreme Court to conduct a thorough review of the tort of bribery, including the rejection of a submission by counsel for Close Brothers that it be abolished. The starting point for the Court of Appeal, however, was Wood, where it was held that a fiduciary relationship was not required to establish civil liability. The Supreme Court decided on a review of the authorities that this was wrong, and that the existence of a fiduciary duty was required for a claim of civil liability.

The Consumer Credit Act 1974

Mr. Johnson also claimed relief under the CCA, section 140A of which concerns unfair relationships between creditors and debtors. It allows the Court a wide discretion to make an order in respect of a credit agreement where it determines that the relationship with the lender was unfair to the debtor. The Court of Appeal had also held that Mr. Johnson’s claim fell within s.140A but the Supreme Court identified errors that the court below made in its findings on fairness, based on the difference between the actual value of the car and the price paid, which exceed Mr. Johnson’s own pleadings. As such the Supreme Court was entitled to decide the issue under the CCA or remit it to the District Judge, and it chose the former option.

The Supreme Court also concluded that the relationship was unfair under the CCA, noting that:

·       Non-disclosure of the existence of a commission was not sufficient, of itself, to make the relationship unfair but was only one factor to be taken into account.

·       The amount of the commission paid in this instance was a significant factor in the classification of the relationship as unfair.

·       The non-disclosure of the commercial tie between the car dealer and the lender was a ‘highly material’ consideration to the issue of unfairness.

·       A debtor’s failure to read the documents was not fatal to the conclusion that the relationship was unfair.

Mr. Johnson was awarded the amount of commission paid, together with interest from the date of the agreement.

Consequences of the Supreme Court judgment

The judgment is significant in that it provides clarity on the law applying to the payment of commissions in commercial relationships with consumers, particularly on whether a fiduciary duty exists in relation to credit broking activity and whether a fiduciary duty is required for relief under the tort of bribery. In addition, the Supreme Court has shown that the wide discretion given to the courts by the CCA is a powerful tool for consumers complaining of unfairness.

The Supreme Court judgment has likely significantly reduced claims which would have been based on the Court of Appeal’s conclusions on the existence of a fiduciary duty. The starting point for claimants now is that the tort of bribery cannot be established unless there was such a duty. However, it is also possible that claims which have an individual factual nexus different to those considered in this decision might be able to succeed but complex legal cases might not be economically viable for claimants in the courts given the amounts which are potentially recoverable. The Financial Ombudsman Service may still provide an avenue for such claims.

The Financial Conduct Authority’s position

The Financial Conduct Authority has confirmed it will consult on a proposed compensation scheme, noting in its press release of 3rd October 2025 that it is clear that some firms had broken the law and their rules. It estimates that the first payments should be made in 2026. For those seeking redress under this avenue, it is notable that the FCA’s rules (in the Consumer Credit Source book) differ from the legal principles outlined in the judgment. For example, the Supreme Court noted that obligation to disclose commission was a qualified obligation and that consent, in contrast to a fiduciary obligation, was not required. The FCA’s guidance is also clear on communications to customers being clear and balanced and able to be understood.

The quantum of claims may also differ from awards made by the courts, depending on the breach which the regulator decides in-scope firms have committed. The Court of Appeal and Supreme Court awarded reimbursement of the amount of commission paid plus interest, but the FCA scheme may not be so generous in all cases.

Keith Blizzard, BL

References

Johnson v FirstRand Bank Limited (trading as Motonovo Finance); Wrench v FirstRand Bank Limited (trading as Motonovo Finance) and Hopcraft v Close Brothers Limited [2025] UKSC 33, [2024] EWCA Civ 1282.

Hurstanger Ltd v Wilson [2007] EWCA Civ 299; [2007] 1 WLR 2351

Wood v Commercial First Business Ltd [2021] EWCA Civ 471; [2022] Ch 123

Temple Square Chambers specialises in UK, EU and international financial services and regulation. Its members are experienced in advising on large regulatory projects, regulatory authorisations, restructurings and contract review and remediations.

Keith Blizzard has over 20 years’ experience in financial services and specialises in EU and UK regulation.

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