The Supreme Court puts the brakes on motor finance claims, but a degree of risk remains

In what will be a welcome judgment for both lenders and motor finance brokers, the Supreme Court has ruled that a fiduciary duty did not apply to the relationship between borrowers and their finance broker in three conjoined appeals concerning vehicle purchases. The Claimants were therefore not entitled to a return of the commission paid on the basis of bribery/dishonest assistance allegations. However, with the FCA announcing the intention to put in place a consumer redress scheme, there are likely to be questions about the fairness of such relationships under the Consumer Credit Act and potential FCA Handbook breaches under CONC.

The UK consumer finance industry breathed a collective sigh of relief on Friday following the Supreme Court's decision in Hopcraft and another (Respondents) v Close Brothers Limited and ors [2025] UKSC 33. In a welcome decision for lenders and brokers, the Supreme Court largely overturned the Court of Appeal in deciding that that the dealers did not owe a fiduciary duty when arranging finance.

RPC covered the Court of Appeal ("COA") decision in our previous blog. In brief, the COA decided that, in each of the three conjoined appeals, the dealer (as finance broker) owed a disinterested duty to provide information or advice on an impartial basis. If such a duty exists, a borrower will be able to establish liability against the lender as a primary wrongdoer if any commission paid is secret. More concerningly, the COA held that, in each case, the dealer owed a fiduciary duty (being a duty of the utmost good faith) to the borrower. In such circumstances, a borrower will be entitled to a full return of any commission paid from the lender if fully informed consent was not obtained (which would necessitate disclosure of the exact level of commission paid), provided the lender was aware of the 'wrongful act' (being the failure to disclose the commission). This decision potentially opened the floodgates for thousands of borrowers to bring claims directly against lenders for sums paid in commission on motor finance purchases, as well as having the potential to impact wider financial services sectors.

The key issue before the Supreme Court was whether the status of the dealer as seller of the vehicle was sufficient to negate the existence of a fiduciary duty. The Court also considered whether the common law does (or should) continue to recognise a distinct tort of bribery and, if so, what relationship would engage this, specifically, whether a disinterested duty was sufficient for these purposes. On one of the appeals (Johnson), the Court also considered whether the relationship between the consumer and lender was unfair under s.140A of the Consumer Credit Act 1974 ("the CCA").

The Supreme Court Judgment

The decision turned on whether the relationship between the lender, broker dealer and consumer gave rise to a 'no conflict' duty owed by the broker to the consumer such as to make the receipt of an undisclosed commission from the lender a bribe at common law, or, in the case of such a receipt by a fiduciary, a breach of that duty giving rise to equitable remedies. The Court took a sensible and pragmatic approach when looking at the relationship between the parties, firstly determining that each participant in the transaction was engaged at arm's length for their own separate commercial objectives. Secondly, it was also decided that the arranging of finance was not being provided as a separate service in its own right (as was the case in the Hurstanger and Wood cases). Rather, the service was ancillary to the sale of the car.

Thirdly, it was determined that at no point in any of the transactions did the dealer give any undertaking or assurance that it was putting aside its own commercial interests in the transaction. Fourthly, the dealers were held not to have undertaken an agency relationship at law in arranging finance, with the Court noting that the dealer had no authority to bind customers to a legal relationship with the lender. The Court also noted that dependency or vulnerability were not, of themselves, indicia of a fiduciary relationship. Crucially, the Court decided that the elements of the relationship between the parties as listed were incompatible with the recognition of any obligation of undivided or selfless loyalty by the dealer to the customer. Expanding on this, the Court stated that the position of the dealer as credit intermediary in the finance transaction was not analogous with that of, for example, a company director, trustee, partner or agent – the dealer's ability to pursue its own commercial objectives were hostile to the existence of such a duty.

The Court rejected the suggestion that the transaction comprised two separate elements, being the negotiated disposal of the vehicle and the subsequent sourcing of the finance package required. The Claimants had argued that the dealer and customer shared the same interests on the second stage of the transaction, and that there was no continuing arm's length commercial negotiation at this stage. The Court rejected this, noting that where the customer needed finance to purchase the vehicle, the dealer's separate interest would persist until completion of the transaction.

The Court also noted that three of the transactions involved the dealer stating to the customer that they would seek the 'most suitable financial package' but did not accept that this of itself gave rise to a fiduciary duty (although it could possibly give rise to claims in contract or misrepresentation). In all three of these cases, the dealer did disclose that it might receive a commission, which pointed away from the existence of a fiduciary duty. On this, the court pointed out that a relationship of trust and confidence was a widespread feature of many commercial relationships which were far removed from any sort of fiduciary duty.

As a consequence, the Supreme Court decided that the Court of Appeal was wrong in law to determine that a fiduciary duty arose as a consequence of their subjective findings of trust, confidence and vulnerability as indicative of a fiduciary relationship.

In looking at the question of a 'disinterested' duty, the Court determined that the tort of bribery was not engaged by anything other than the receipt of a benefit by a person who is subject to a fiduciary duty to which the beneficiary of that duty has not given fully informed consent. For these reasons, all four of the claims based in equity and bribery were deemed to fail and the appeals allowed. As a consequence, the Court did not consider the adequacy of the disclosures around the commission received or the availability of a remedy in restitution against the briber and the availability of rescission at law or in equity.

The CCA claim

Mr Johnson also pursued a claim that the relationship was unfair under s.140A of the CCA.

It was conceded at the first trial of Mr Johnson’s claim that, because there was a personal loan element of the credit agreement and there were antecedent negotiations in respect of this under section 56(1)(c) of the CCA and, as a result, negotiations with Mr Johnson were deemed by section 56(2) to be conducted by the dealer in the capacity of agent of the lender as well as in its actual capacity. Under s.140A, a relationship can be deemed unfair based on any of the terms of the agreement, the way in which the creditor exercised or enforced its rights under the agreement and / or any other thing done by or on behalf of the creditor, based on all relevant matters.

The burden of proving an unfair relationship falls on the creditor, and if this is established, the Court may award various remedies including the repayment of any sum paid by the debtor or a reduction in the sum payable under the agreement. Mr Johnson's pleaded case made a number of allegations of unfairness, including that the lender failed to ensure that the dealer (as agent) complied with the Consumer Credit Sourcebook ("CONC"), that key features of the finance were not explained (meaning he could not make a fully informed decision), that elements of the transaction that could affect the dealer's impartiality (as broker) were not prominently indicated under CONC 3.7.4G and that the additional interest payable was not justified by any additional work required under CONC 4.5.2G.

These arguments had been dismissed by DDJ Sandercock at first instance, who noted that Mr Johnson mistakenly asserted that the commission paid to the dealer was based on the interest rate applied to the loan, when it was actually based on the capital value of the sum borrowed, and the nstalments would have been the same regardless of the level of commission. The Court at first instance also noted that Mr Johnson was not entitled to claim against the lender based on an alleged bad bargain having been struck for the purchase of the car.

The COA determined that DDJ Sandercock unduly relied on the mistake as to the nature of the commission arrangement (which was not, as noted, a discretionary commission arrangement). The COA noted (with reference to Plevin) that a finding of whether or not the dealer disclosed the commission would have a material impact on whether or not the relationship between borrower and lender was unfair. The COA did determine that the relationship was unfair, noting the 'very high' commission paid to the broker. However, the Supreme Court determined that the COA erred in taking into account the inflated price paid for the car when considering whether or not the relationship was unfair (noting that the fact the level of commission correlated with the increase in the purchase price over and above the Glass's Guide value of the vehicle was a coincidence).

The Court referred to the FCA's submissions, which noted that relevant factors in considering unfairness would include the size of commission relative to the charge for credit, the nature of the commission, the characteristics of the consumer and extent and manner of the disclosure of commission.

Mr Johnson's evidence at trial was that the commission was not disclosed to him orally and that he was further not aware of it because he did not read the lender's terms and conditions (which stated that commission may be payable to the broker, and that the amount was available from the broker on request). The Court agreed with the FCA that the mere fact commission had not been disclosed was not sufficient of itself to make the relationship unfair.

Nevertheless, the high level of undisclosed commission was a powerful indication that the relationship was unfair, and would have been a major consideration for Mr Johnson. Despite the cost of the commission not being directly added to the cost of the credit, it was accepted that this would have formed part of FirstRand's overheads and would have been recovered indirectly from borrowers. The commercial relationship between the dealer and lender was also held to be a relevant factor, as this was a tied relationship with finance applicants having to be submitted to the lender in the first instance, ahead of any other lender being approached. The Court agreed with the COA, that the dealer made no attempt to be impartial between different lenders, despite the Suitability Document noting that it was offering products from a select panel of lenders.

In conclusion, despite Mr Johnson's disregard of the precontractual documents and terms and conditions being held to be relevant, the Court did not remit the s.140A question back to a district judge, and ordered that FirstRand repay the £1,650.95 paid in commission, along with interest "at an appropriate commercial rate" from the date of the agreement.

Conclusion

The decision of the Supreme Court will be welcome news for the motor finance industry and wider sectors. The Court's approach to assessing the relationships between the parties to the transactions under appeal is eminently sensible and reflects the commercial reality of such transactions. Imposing a duty of utmost good faith on a motor finance broker in circumstances where this is intrinsically linked to the purchase of a vehicle (presumably at a profit) always seemed to stretch credulity.

Lenders and brokers are not home 'scot-free' though; based on this verdict, there will be circumstances where a relationship could be deemed unfair and a borrower could be entitled to a return of commission (plus interest at an appropriate commercial rate). Questions about the degree to which any commission arrangements were disclosed (and the level of commission itself) will be highly relevant, and whether or not a relationship will be deemed unfair will be fact specific in each case.

Beyond this, the FCA has also announced that it will be issuing a consultation in October on a compensation scheme for motor finance customers. However, the Supreme Court decision will be taken into consideration and estimates of redress (while only indicative) have drastically reduced, to between £9 and £18 billion. The FOS will also have been paying close attention to the decision and, despite not having to apply the law, this may factor into how they decide complaints on similar facts (as well as informing the pending appeal of Barclay's judicial review of FOS in the Clydesdale Case).

However, for now, the industry can enjoy the decision, safe in the knowledge that the scope of any mis-selling scandal has been significantly reduced albeit not removed entirely.