The Supreme Court has heard the arguments on disclosure and fiduciary relationships in the context of motor finance commissions, following a decision by the Court of Appeal which caused widespread market concern. In this briefing, we look at the arguments heard by the Supreme Court, the FCA's intervention in the appeal and the possible outcomes and implications of the case for insurers and brokers.
Background
In its judgment in October 2024 in the conjoined appeals of (1) Johnson v FirstRand Bank Limited (London Branch) T/A Motonovo Finance (2) Wrench v FirstRand Bank Limited, and (3) Hopcraft v Close Brothers Ltd1, the Court of Appeal set the cat among the pigeons by deciding that the duties of credit brokers, and by extension the lenders for whom they acted, were considerably more extensive than had widely been understood before.
Details of the Court of Appeal's decision are set out in our earlier briefing on the case. In summary, however, the Court of Appeal found that motor dealers, when acting as credit brokers, owed their customers a duty to provide information, advice or a recommendation on an impartial or disinterested basis, and that this relationship was also a fiduciary one. The Court of Appeal concluded that:
“It is precisely because the brokers were in a position to take advantage of their vulnerable customers and there was a reasonable and understandable expectation that they would act in their best interests, that they owed them fiduciary duties”.
The judgment caused significant consternation, not least because it imposed requirements on regulated parties significantly beyond the obligations imposed on lenders, or indeed intermediaries generally, by the Financial Conduct Authority ("FCA") in its rules. The lenders were granted permission to appeal to the Supreme Court, with the FCA and the National Franchised Dealers Association permitted to intervene. HM Treasury's request for leave to intervene was denied. The Supreme Court hearing took place between 1 and 3 April 2025.
Issues on appeal
The appeal required the Supreme Court to consider detailed arguments on numerous areas of law, including: (1) the tort of bribery; (2) fiduciary and disinterested duties; (3) dishonest assistance; and (4) s.140A of the Consumer Credit Act 1974 ("CCA"). FirstRand, Wrench and Hopcraft (together "the Lenders") and Johnson, Mr Wrench and Mr Hopcraft (together "the Claimants") advanced the following points.
Tort of bribery
The Court of Appeal found that where there is a fully secret commission a lender has primary liability for the wrongdoing, because the secret commission is analogous to a bribe. The Lenders sought to argue in the Supreme Court that there is no common law tort of bribery and the cases relied upon in the Court of Appeal's decision had been decided incorrectly. By contrast, the Claimants countered that the tort of bribery was well established in English law and should not be abandoned. Paying a commission to a dealer is considered a bribe because it creates a potential conflict of interest between the agent and the principal. If the Lenders succeed with their argument, customers will be unable to rely on the law of tort and will have to bring their claims in equity.
Fiduciary and 'disinterested' duties
Regardless of whether the claim is brought in tort or equity, it is necessary to demonstrate a fiduciary duty. In this context, this would be an obligation on motor dealers to act in the best interests of customers when arranging finance deals. The Court of Appeal found the relationship between the motor dealers and their customers to be an ad hoc fiduciary one. It also found that motor dealers owed a duty to their customers to provide information, advice or recommendations on an impartial or disinterested basis.
The Lenders argued in the Supreme Court that there is no real difference between an ad hoc fiduciary duty and a disinterested duty. Ultimately, for a fiduciary duty to arise there must be an obligation of loyalty. Because the sale and finance elements in motor finance are inextricably linked, it is not plausible to say that a motor dealer undertakes to act with undivided loyalty in respect of the financing component alone. Moreover, the Lenders reasoned that commission was a known part of the industry and that motor dealers had no power to bind a customer to any particular transaction.
By contrast, the Claimants argued that the motor dealers had a role in the customer's decision-making process and consequently customers put trust and confidence in them to provide impartial and disinterested advice. The payment of commission by lenders undermined this.
Dishonest assistance
The Lenders also argued that they could not be held liable as accessories for dishonest assistance if the court determines that the motor dealer owed and breached a fiduciary duty, and the Lender did not know about this duty. The Lenders submitted that this test includes both subjective and objective elements. The Claimants contended that the Lenders were dishonest, as they knew the motor dealer was acting on behalf of the customer (with this being sufficient to prove dishonesty). Contrary to the Lenders’ position, the Claimants considered the test for dishonesty to be purely objective and that it is not sufficient to plead ignorance.
S.140A Consumer Credit Act 1974
Unfair relationships under s.140A CCA were briefly discussed in the Supreme Court. As a reminder, the Court of Appeal found that the relationship between Mr Johnson and FirstRand was unfair under the CCA. The Lenders countered that this was incorrect and the basis of the Court of Appeal's submission was not sound on the facts. Although the Claimants argued that the size of a commission payment usually determines unfairness – and that there was an unfair relationship on the facts of Johnson v FirstRand – they did accept that there were flaws with the Court of Appeal's judgment.
The FCA's intervention
The FCA's intervening submissions took a middle ground; both cautioning against the Court of Appeal's sweeping approach and the generality of treating motor credit brokers as owing fiduciary duties to customers, whilst also requesting that the Supreme Court exercises a degree of caution when considering – and possibly accepting – the Lenders' arguments.
When it came to arguments relating to fiduciary duties, the FCA shared some of the concerns of the Lenders about expanding well-established categories of fiduciary duty which could result in many types of intermediaries being in fiduciary relationships with customers. That being said, the FCA did make the point that fiduciary duties are fact-sensitive, so it is not inconceivable that a fiduciary relationship may be found in respect of a particular subject (although any such finding has to be sensitive to contractual relationships and the applicable statutory and regulatory framework).
By contrast, the FCA was less aligned with the Lenders' position on abandoning the tort of bribery and recasting the 'disinterested' duty as nothing more than a fiduciary duty. It was concerned about a lacuna being created, whereby in a case where an agent does not owe fiduciary duties the principal will be left without the protection against conflicts of interest currently provided by the civil law of bribery. In the FCA's view, abandoning the tort of bribery would be an extreme outcome. The 'disinterested' duty serves as a way of preventing these gaps in the law.
When considering s.140A of the CCA, the FCA stressed that its main concern was the public interest in achieving finality and clarity in the law. The FCA submitted that an authoritative ruling from the Supreme Court would lead to consistency in respect of numerous pending complaints and claims. The FCA stated that while s.140A requires a highly fact-sensitive assessment, taking into account a number of elements, the principles are tolerably clear. When it came to motor finance, the relationship between the motor dealer and the customer was not unfair merely because commission of which the customer was unaware was paid.
The FCA took a series of positions with consumer protection in mind. Ultimately, certainty and predictability are key for the FCA and it wants to keep these types of major claims and redress to a minimum to avoid adversely impacting the market. The FCA had previously banned discretionary commission payments in motor finance in 2021, with a report commissioned in 2024 to review historical arrangements. The report is intended to inform whether the FCA will exercise its powers under s.404 Financial Services and Markets Act 2000 to implement a consumer redress scheme. If the Supreme Court rules entirely in favour of the Lenders then the FCA may re-assess its position on whether to implement a scheme. By contrast, should the Lenders lose or be only partially successful, then the FCA will take into consideration the judgment in terms of scoping and framing any such scheme. It is also possible that the FCA will change some of its rules in light of the Supreme Court's decision.
Next steps and wider implications for insurers and brokers
The Supreme Court's decision is expected in or around July 2025. Given the multi-faceted nature of the appeals, a range of outcomes is possible. While in all litigation nothing is certain, there has been some speculation that the Supreme Court could rule substantially in favour of the Lenders and find that the motor dealers did not owe blanket fiduciary or disinterested duties to the Claimants. However, these duties could still arise on a case-by-case basis. It seems unlikely that the Supreme Court will abolish the tort of bribery. With regard to remedies, it appears that the Claimants will need to establish loss with there being a rebuttable presumption of loss equal to the amount of the commission.
It is evident from the presence of interveners and the nature of the questions posed by the Supreme Court justices that the Supreme Court is acutely aware of the wider implications that this case may have beyond motor finance; i.e. extending to other situations where commission is paid. For instance, the involvement of premium finance in how insurance policies are sold and funded could be impacted by the judgment. In many cases of premium finance, brokers receive commissions from the finance provider based on the loan value or interest rate charged. Hence, those insurers with in-house finance offerings or those who rely on third-party creditors may face scrutiny, with historic arrangements possibly the subject of complaints or litigation and future sales under pressure to comply with any new transparency requirements.
As discussed in our previous briefing, the Court of Appeal's judgment drew on common law principles, with relatively little consideration of the relevant FCA rules. If the Supreme Court rejects the appeal, this demonstrates: (1) that compliance with FCA rules is not necessarily enough to avoid a finding that an intermediary is in breach of a common law obligation to disclose a commission; (2) factors such as the vulnerability and / or lack of sophistication of the customer have to be borne in mind; and (3) the rules on commission disclosure are not limited to activities regulated by the FCA.
Insurers and brokers will no doubt be awaiting the Supreme Court's judgment and hoping it reinstates the status quo before the Court of Appeal's decision last October. However, given the nature of the issues at stake and the likelihood that the Supreme Court's decision will be binary, it would be sensible to plan for a Supreme Court judgment that does not entirely reverse the effect of the Court of Appeal's decision.
We therefore recommend that insurers and brokers identify potential higher-risk lines of business and retain documents evidencing historical arrangements. Going forward, giving greater prominence to statements disclosing the fact that commission may be paid or received (as applicable) may help to counter future claims that the possibility of commission payments was "concealed" from the customer. In some cases, obtaining the express agreement of the customer to such arrangements may be thought appropriate (although even that might not defeat a section 140A claim).
For more information about the issues discussed in this article, please contact the authors below.
[1] [2024] EWCA Civ 1282
