Motor Finance Commission: What Happens Next After The Hopcraft Supreme Court Hearing Arguments?

Read on to understand the key arguments made by the parties and interveners in the Supreme Court hearing of the motor finance commission appeal by Close Brothers and FirstRand Bank against the Court of Appeal's decision of October 2024. Find out the next key steps and dependencies and the relevance of the Supreme Court outcome to the FCA's redress scheme plans, FOS decision judicial review, complaints handling pause and litigation more generally.

The key issues for the Court were:

• Did the motor finance dealers owe disinterested or fiduciary duties to their customers?
• If so, were those duties breached?
• If yes, are the lenders liable to pay compensation as accessories to that breach?
• Was the credit agreement between the lender and customer unfair under s.140A of the Consumer Credit Act 1974? (Johnson appeal only)

The below is a very high-level summary and simplification of the key arguments made by the parties, which does not purport to capture every point made.

Day 1 – 1 April 2025

The Supreme Court began hearing the grounds of appeal by the Appellant lenders. The lenders' submissions focussed on whether the credit brokers (car dealers) owed implied fiduciary duties and/or a common law "disinterested duty". The Appellant lenders disagreed with the imposition of an implied fiduciary duty on dealers, emphasising the commercial nature of the transactions, the relevance of existing legislation and regulatory consumer protections shaping the relationship sufficiently without common law extending them and the nature of the dealer-customer relationship overall: on this, they argued that there has been no express or implied undertaking by the brokers to adopt a fiduciary duty to the customer. When the relationship between the customer and the broker-dealer was looked at end-to-end, without segmenting the broking activity and ignoring the act of selling the car, there were more indications that no fiduciary duty could be implied. The Appellant lenders submitted that importantly, there had been no subordination of interests by the car dealer in favour of the customer and therefore the duties could not be implied.

On the disinterested duty, which the Appellants said could not in any event exist in a wider set of circumstances than an implied fiduciary duty, the Appellants made submissions that the tort of bribery should be abolished on the basis that the law already provides suitable remedies for breaches of fiduciary duty in equity.

The Appellants also addressed the accessory liability of lenders in case their arguments on the absence of a fiduciary duty were to fail. The main focus was around the test for dishonesty and they said that the dishonesty was not made out on the facts of these cases.

The Court considered the Appellant lenders' arguments that (1) car dealers owe no fiduciary duty to customers, (2) the tort of bribery should be abolished, and (3) that for lender accessory liability, a narrow test for dishonesty should be applied.

Day 2 – 2 April 2025

The second day began with the Appellant lenders concluding their submissions. They focussed on emphasising the requirement for dishonesty in bribery cases and the unfair relationship provisions in s.140A of the Consumer Credit Act 1974. On that claim, the Appellants argued that commissions in motor finance differ from Payment Protection Insurance commissions and are not inherently unfair because the commission is paid for a service provided. The Court also heard from National Franchised Dealers Association (NFDA) as intervenor, who tried to provide a more holistic picture of the role of the dealer. The NFDA submitted that, as the national regulator for dealerships, it has never understood dealers to have fiduciary duties. The NFDA said that it was created in 1914 and for over 100 years it has been well known, understood and accepted that commission was a normal part of the hire purchase process, not a corrupt practice. The NFDA also emphasised the impact on the market if dealers are found to owe such duties.

Day 2 concluded with the first submissions from the Respondents (customers). They argued that the car dealer owed an implied fiduciary and disinterested duty to consumers on the basis they had a role in the decision-making process of the customer and that this was the correct test. In contrast to the Appellant lenders, the Respondents said the Court should separate the two distinct stages of the transaction performed by the brokers, as between car sale and credit broking, and not see the relationship between the broker and customer as a whole. The Court should look only at the broker's credit broking step to decide if a fiduciary duty arises. The Respondent customers also argued that all three cases engaged the tort of bribery on the basis that the customers had no knowledge of, or had not given their consent to, the payment of commission. The Respondent customers argued that the tort of bribery had developed for good reason and has been applied correctly and consistently in case law and should not be abolished.

The turn of the Respondents customers and Interveners. They argued for (1) the finding of a fiduciary duty between the dealer and customer, highlighting the dealer's role in the decision-making process by the customer in establishing a fiduciary duty, and (2) against the abolition of bribery. The Court also heard from the NFDA as an intervening party, which provided context on the role of the dealer and market practices.

Day 3 – 3 April 2025

The Respondent customers continued with their submissions on the third day. They extensively reviewed past case law and evidence provided in these cases to seek to support their position on disinterested duty. They argued that the statutory and regulatory framework for credit broking and motor finance does not take precedence over, and should not influence the Court's view of, the extent of the common law over that activity. They said the Court must apply the common law in the usual way without allowing statute and regulation to influence its application, and it would then be for Parliament to respond if they wish. The Respondents also made further submissions that the commission was secret on the basis that disclosures were "hidden" in terms and conditions. The Respondents argued that Wrench was also a secret commission case that engaged the tort of bribery as the commission was paid without the customers' knowledge and consent.

The Financial Conduct Authority (FCA), as an intervenor, emphasised public interest and its importance in resolving the matter for consumer protection and market certainty. The FCA also highlighted its plans to arrange a redress scheme (post-judgment) and concerns about the broad impacts of implying a fiduciary duty on regulated markets. The FCA were keen to stress the importance of the regulatory framework but did not go so far as to argue that this should prohibit the development of the common law – they said there should be a balance.

The FCA did not agree that the tort of bribery should be abolished in its entirety. Regarding duties, the FCA submitted that treating all motor dealers as fiduciaries would be too broad and would dilute the duty. It also did not think that a disinterested duty arose more broadly than a fiduciary duty, but it did indicate a disinterested duty might arise. The FCA also did not agree with the Court of Appeal's broad read-across from Plevin on unfairness under s.140A of the Consumer Credit Act 1974.

The day concluded with some responding arguments from the Appellants: they made some overarching points about the operation of the motor finance industry over time and how the position being put forward by the Respondents is out of kilter with the market and the regulatory framework. Finally, the Appellants were keen to point out the limitations of the Claimants witness evidence, which was proforma and they said that little weight should be attached to it.

For copies of our daily emails summarising the hearing arguments in more detail, contact Sarah Thomas or Jen Hedley.

The Respondents concluded their submissions, arguing that a broad test for dishonesty should be applied with respect to accessory liability. The Court also heard from the FCA as the second intervening party, who highlighted public interest, plans for a redress scheme, and cautioning against treating all motor finance dealers as fiduciaries. The Appellants had the final word and responded to the Respondents' arguments.

What's next?

The Supreme Court indicated that July would be a reasonable time period to expect a judgment.

The FCA has strongly indicated that it will establish a formal industry redress scheme and is likely to use its powers under s.404 FSMA. However, this process has a number of stages including pre-consultation and the requirement for a public consultation of the proposed rules of the scheme with the opportunity for feedback. Such a scheme would likely need to:

• Be based on legal rights of customers that could be brought in litigation – for example, it would not be enough to base the scheme on Principle 6 (Treating Customers Fairly) or Principle 12 (the Consumer Duty) or guidance, which are not privately enforceable by consumers. The FCA will look to the outcome of the Supreme Court to help it identify what legal rights it can be based on. If the Supreme Court finds against the customers, the FCA may need to find an alternative basis for its scheme.
• Consider whether those rights could be enforced against lenders, or just brokers, in order to determine which parties the scheme should cover.
• Set out other aspects of its scope – for example, whether it will apply to DCA commission arrangements only, the time period it will cover and whether customers will be automatically included or will need to "opt in".
• Take into account the findings of its s.166 skilled persons diagnostic work, which included consideration of the wider operation of the motor finance market and whether these commission arrangements are likely to have caused financial loss to customers; and
• Set a process for assessing which customers receive redress and how that should be calculated.

In terms of finality, any customers dissatisfied with their offer of redress under the scheme could generally refer it to the FOS for determination in accordance with the scheme rules.

Alongside the Supreme Court decision and the FCA redress scheme, the FOS decisions finding in favour of customers are subject to appeal in the Court of Appeal. That hearing is being heard on 1 to 3 July 2025. The resulting judgment, particularly in relation to whether there is a breach of CONC 5.4.3, may help the FCA confirm whether to base its redress scheme on this breach of the rules in its consumer credit sourcebook.

It may also help firms determine how to conclude complaints which are outside the scope of the FCA redress scheme.

Inevitably, there will be limits to the scope of both the FCA redress scheme and FOS complaints, and no doubt claims management companies and claimant law firms will be looking to find a basis in the Supreme Court judgment and elsewhere to bring litigation claims in such cases. Firms need to be ready to pivot to litigation as well as complaints.

What can firms be doing now?

• Have a plan in place for briefing stakeholders on the Supreme Court decision – we will be covering the judgment and you can sign up for our briefing HERE;
• Ensure that any complaints on pause are being progressed to the extent possible pending the pause being lifted;
• If you have significant exposure to motor finance commission redress, be engaging with the FCA and trade associations to explore the redress approach and scope of redress scheme rules;
• Be ready to interpret and respond to the FCA's announcement on its next steps for redress six weeks after the Supreme Court judgment is handed down, with appropriate legal support; and
• Think about tech you can use to execute the redress – at AG, we have an AI-enabled tech platform that hosts and operates redress exercises under our supervision. Contact us to ask for a live demo we have designed specifically for motor finance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.