Court of Appeal slams brakes on judicial review as Supreme Court accelerates in motor finance saga

As the Court of Appeal slams the brakes on Barclays' judicial review of a FOS decision upholding a vehicle finance complaint, all eyes are on the Supreme Court as they prepare to hand down judgement this month in the case of Johnson v FirstRand Bank which is primed to have a multibillion-pound impact on the vehicle finance market.

As readers of these blogs and those following the vehicle finance market will all be aware, the UK Supreme Court is expected to hand down its judgment this month, following the appeal in Johnson v FirstRand Bank Limited back in April. This judgment will set the standard on whether it is lawful for finance brokers to receive commissions from lenders without obtaining the customer's informed consent. 

This decision has the potential to cost the finance industry tens of billions. If they hold that car dealers do owe fiduciary duties to customers when arranging finance, this could lead to an industry-wide redress scheme on a scale nearing the PPI scandal, predicted to cause an impact in the industry upwards of £30bn. Whilst this will be the landmark case, there is another case that could set the standard for whether we are about to see a wave of successful complaints to FOS.

Running parallel to the Supreme Court case is Barclays' appeal of a judicial review decision concerning FOS upholding a complaint concerning the same type of finance agreements (being discretionary commission models). An analyst from RBC Capital Markets has estimated that the potential cost to Barclays could reach up to £250 million if the appeal is rejected and this could open the floodgates to a wave of successful complaints. Lenders are watching this case closely, many of whom offered similar commission-based finance arrangements. However, the case has hit a bump in the road as the Court of Appeal made clear that the Supreme Court case will lead the way.

Barclays' Appeal on Hold

The Barclays matter involves a complaint made to the FOS by a customer who purchased a second-hand car through Arnold Clark. The customer alleged that they were not informed that their loan agreement with Clydesdale Financial Services (a subsidiary of Barclays), included a commission payment of £1,300 to Arnold Clark.

The FOS upheld the complaint in 2024, finding that the commission was not clearly disclosed. FOS noted the arrangement was unfair under consumer credit rules and went on to state that these types of "behind the scenes" financial arrangements presented a conflict of interest. Barclays made an application for judicial review, with the key arguments being that FOS had erred in law in determining that Arnold Clark was required to disclose the nature of the commission arrangements and that the decision on quantum was irrational. These arguments were rejected by the High Court in December last year.

Barclays have since appealed the High Court's decision. This was expected to go before the Court of Appeal this week, however, the Court of Appeal have adjourned this matter until September, pending the outcome of the parallel Supreme Court case. Lord Justice Stephen Males stated it was "necessary to know what the Supreme Court is doing to decide" given that case was to act as a test which will inform the multibillion-pound consumer redress scheme.

Lord Justice Males further justified the adjournment, stating that whatever the Supreme Court decides is "almost inevitably going to be highly relevant because it sets the landscape for consideration of the ombudsman's decision and the various rules, guidance and principles which are in play", before going on to state that if the Supreme Court does uphold the decision in FirstRand Bank and hold that there is a fiduciary relationship between the credit broker and consumer, then Barclays' appeal would be in trouble.

What Comes Next?

Back in 2024 we predicted that there would be an industry wide 'opt-out' redress scheme under s.404 FSMA due to the volume of complaints made regarding discretionary commission arrangements. It seems that, if the Supreme Court uphold the decision, this will become a reality. The FCA is intervening in both the judicial review and Supreme Court motor finance cases and is considering implementing a redress program.

The FCA previously confirmed that they will confirm whether they are proposing to introduce a redress scheme within six weeks of the Supreme Court judgment. Whilst they have yet to decide how this will work the FCA has indicated that it may look at an 'opt-out' model for the redress scheme, similar to what we saw for the s.404 review of British Steel Pension transfers. However, time will tell.

The Supreme Court ruling will be a landmark decision with a potential impact cost of billions. The Barclays case will then likely be the watershed moment for the potential wave of claims that will follow before the FOS. With the potential for a redress scheme mirroring the level of the PPI scandal hanging in the balance, and the significant impact this will all have on finance industry, we wait to see the direction the Supreme Court takes.