The Supreme Court has allowed the lenders' appeal in part in its much-anticipated judgment relating to lender liability for the payment of third-party broker commissions in the motor finance context: Hopcraft & Anor v Close Brothers Limited [2025] UKSC 33.
The three conjoined appeals considered the sale of motor finance to financially unsophisticated consumers. Each of the customers had bought a second-hand car from dealerships which also brokered the finance the buyers required. As a result of doing so, the dealer brokers received a commission payment from the relevant lender (either not disclosed or only partially disclosed to the customer).
In a unanimous judgment, the Supreme Court (Lords Reed, Hodge, Lloyd-Jones, Briggs and Hamblen) held that the lenders were not liable: (a) at common law for payment of a bribe; nor (b) as accessories for breach of fiduciary duty by the dealer brokers. This is because the dealer brokers had not assumed, and did not owe, any fiduciary duty to the customer. However, the Supreme Court did allow the appeal in respect of Mr Johnson's claim under s.140A of the Consumer Credit Act 1974 (CCA), choosing to decide the issue of unfairness for itself rather than remitting the case to a District Judge, and finding that the relationship between Mr Johnson and the lender was unfair on the basis of its assessment of the underlying facts of the lending. The Supreme Court ordered the lender to pay the amount of the commission to Mr Johnson with commercially appropriate interest from the date of the agreement.
The decision represents a welcome return to the orthodox position in relation to how fiduciary duties arise and the law of common law bribery, effectively overturning the most difficult to reconcile elements of the Court of Appeal's decision in this case (see our blog post). As a result, motor finance commission claims against lenders are likely to be limited to statutory claims under s.140A CCA. The Supreme Court has also given careful, if non-exhaustive, guidance on the factors to be taken into account for the purpose of s.140A claims (which requires a court to have regard to all matters it considers relevant when deciding whether a consumer credit relationship is unfair to the debtor).
That said, the requirement for a multi-factorial analysis under s.140A CCA will, inevitably, create some uncertainty when trying to determine the merits of such cases. Mr Johnson's case may, despite turning on its facts, be seen in practice as a benchmark both for this analysis and for the appropriate remedy under s.140B CCA. This focus on the underlying facts may also create procedural difficulties for claimants wishing to proceed by way of a class action, particularly for any attempt to bring a representative action under CPR 19.8, which requires claimants to have the "same interest in the claim" (recently seen in the context of secret commission for IP renewals in Commission Recovery Ltd v Marks & Clerk LLP [2024] EWCA Civ 9 – see our blog post).
With the Supreme Court's rejection of the common law and equitable claims, focus has now shifted to whether the FCA will provide an alternative route for consumers seeking redress. The FCA has welcomed the Supreme Court's clarification of the law and confirmed that it will consult, by early October 2025, on a redress scheme as part of the regulator's review into motor finance commission arrangements: FCA to consult on a compensation scheme for motor finance customers. The FCA will propose that discretionary commission arrangements will be covered by the redress scheme and will also consult on whether non-discretionary arrangements should be included in light of the Supreme Court's decision in relation to Johnson.
In stating its view that a redress scheme should cover agreements dating back to 2007, the FCA notes that it wants a scheme to be comprehensive and avoid the need for consumers to use other routes to secure compensation and to prevent large numbers of ongoing disputes in the courts. The FCA has also discouraged the use of claims management companies as being unnecessary.
The FCA has reiterated that it will keep in mind seven principles, set out in a previous announcement in June 2025, which will guide the design of any redress scheme, with a balance of priorities between consumers and firms' interests. The scheme will be subject to a consultation period, with final steps confirmed afterwards and, if approved, is expected to be operational in 2026.
The FCA's statement focuses on the finding of unfairness under the CCA, and states that its consultation will cover how firms should assess whether the relationship between the lender and borrower was unfair for the purposes of the scheme and if so, what compensation should be paid. However, it also notes that firms were not complying with the FCA's rules. It is possible therefore that the scope of a redress scheme may potentially be broader than s.140A CCA claims.
What is clear, is that the outcome of these appeals will significantly impact the landscape for civil claims in respect of motor finance commissions (existing and future). The judgment may also have ramifications for other industries with a business model involving the payment of commissions to third parties. Our insurance colleagues are considering the implications of the judgment and will publish a blog post shortly. In terms of tax implications, in principle payments which compensate (or settle claims) for losses suffered by customers in the course of dealing with a lender may be deductible in computing the lender's taxable profits. Our tax colleagues have considered these issues and have extensive experience of dealing with such issues with HMRC.
We consider the decision in more detail below.
Background
The background to this decision is more fully set out in our blog post on the Court of Appeal's decision, here.
In summary, the claimant individuals (Mr Johnson, Mr Wrench and Ms Hopcraft) entered into car finance agreements arranged by car dealerships with the defendant lenders. The lenders paid a discretionary commission to the car dealerships for arranging this finance. The commission structure permitted the car dealer broker a degree of discretion to set the interest rate under the car finance agreement: the higher the interest rate for the borrower, the higher the commission for the car dealer. In 2021, the FCA banned certain discretionary commission arrangements models. Following this, the claimants brought proceedings against the lenders seeking the return of the commission paid to the car dealer brokers. The claimants were unsuccessful in the lower courts.
The claimants appealed to the Court of Appeal.
Court of Appeal decision
The Court of Appeal's reasoning is discussed in our previous blog post. We set out some detail below, given that these findings contextualise the Supreme Court's decision.
The Court of Appeal overturned the lower courts' decisions and found in favour of the claimants. It held that the lenders were liable for the commissions paid to the car dealer brokers. In particular, the Court of Appeal found that the car dealers (when acting as a broker) owed a fiduciary duty akin to agency to the buyers of the cars. It found that this ad hoc fiduciary duty arose in tandem with and in consequence of the car dealer's "disinterested duty" to provide information, advice or recommendations on an impartial or disinterested basis. This meant that the car dealers (again, when acting as brokers) had to act in the best interests of the customer and not put themselves in a position of conflict with that customer.
On the basis of its finding that a fiduciary relationship did exist between the customer and the car dealer broker, the Court of Appeal said that the car dealer broker could not lawfully receive a commission from the lender without first obtaining the customer's fully-informed consent to the payment of that commission. The Court of Appeal found that none of the customers in the cases under appeal provided such informed consent. Accordingly, the lenders were liable as an accessory to a claim for breach of fiduciary duty against the broker.
The Court of Appeal also found that the appeals by Mr Wrench and Ms Hopcraft were "fully secret" or "no disclosure" cases, for which the lenders had direct liability to the customers on the basis that the secret commission payment made to the dealer broker was a bribe actionable at common law.
The Court of Appeal was also required to decide whether or not there was an "unfair relationship" between Mr Johnson and his lender pursuant to s.140A CCA. The Court of Appeal determined that a relationship will not necessarily be found to be unfair only because a broker receives a commission from a lender and there has not been disclosure of that commission – the court will consider all the facts. However, on the facts, the relationship was rendered unfair by the significant amount of the commission relative to the sum that was borrowed and the fact that the true nature of the relationship between borrower and lender was not disclosed (and was actively concealed by the car dealer broker).
The lenders appealed to the Supreme Court.
Intervention in the appeal to the Supreme Court
Due to the significant impact of the Supreme Court's decision across the market (see our FSR team's podcast discussing the potential regulatory implications), several concerned parties applied for permission to intervene in the appeal. The Supreme Court granted the FCA and the National Franchised Dealers Association permission to intervene by way of written and oral submissions. However, it refused the applications for permission to intervene by Consumer Voice & Others, the Finance and Leasing Association and the Treasury.
Supreme Court decision
The Supreme Court allowed the lenders' appeal in part. We consider the key elements of the Supreme Court's legal analysis below.
Clarification of the three-cornered transaction in the context of motor finance
Before turning to its legal analysis, the Supreme Court clarified the type of "three-cornered" transaction central to each of the appeals [para 2]:
- Motor dealer brokers offer cars for sale to the public and agree a price with a prospective buyer (which may be reduced for a buyer on credit, below that payable by a cash buyer). Where the customer is buying on credit, the dealer broker obtains a finance offer on hire purchase terms from one of a number of panel lenders (who are given the customer's financial information by the dealer broker).
- If the offer is acceptable to the customer then: (1) the dealer broker sells the car to the lender; (2) the customer enters into a back-to-back hire purchase agreement with the lender for a specified term, usually with an option to return or purchase the car at the end of the term; (3) the customer drives away the car; and (4) the lender pays the dealer broker a commission for the introduction of the hire purchase business.
- No direct contract is made between the dealer broker and the customer. Nor does the customer generally meet or speak to any member of the staff of the lender. The offer of the hire purchase agreement is made to the customer in documents presented to the customer by the dealer broker, acting for that purpose on behalf of the lender.
With this factual scenario in mind, the Supreme Court proceeded to consider the legal issues.
Did the dealer brokers owe a fiduciary duty to the customers?
The Supreme Court confirmed that the key principle when considering whether a fiduciary duty has been assumed by a party is that a fiduciary acts for, and only for, its principal, owing a duty of single-minded loyalty (see Bristol and West Building Society v Mothew [1998] Ch 1, 16). This means that a fiduciary cannot lawfully put themselves in a position of conflict with their principal, and cannot receive a personal benefit, without their principal's informed consent [para 90].
The Supreme Court accepted that it is not necessary for a relationship to fall within one of the established categories, or involve the full range of fiduciary duties, in order for a fiduciary duty to be imposed in a particular context [para 96]. Established categories of fiduciary relationships include trustee and beneficiary, director and client, solicitor and client, fiduciary agent and principal.
Accordingly, a fiduciary relationship can arise in a commercial context, but there must be an assumption of responsibility by the fiduciary to act with loyalty to the purported principal. To determine whether fiduciary obligations are owed in such circumstances requires the court to consider both the terms of any contract between the parties and the factual background. The Supreme Court noted expressly that it is important not to distort the commercial bargain between the parties by too readily implying fiduciary obligations into a commercial relationship. It referred to the general rule that, outside well-established fiduciary relationships, "it is normally inappropriate to expect a commercial party to subordinate its own interests to those of another commercial party". In the Supreme Court's view, a commercial transaction in which one party has a financial interest, known or apparent to the other party, in bringing the transaction into fruition, is not one in which an undertaking of single-minded loyalty and altruism can readily be implied [para 100-110].
Turning to the typical features of the motor finance transactions considered in the appeal, the Supreme Court made the following observations [paras 268-275]:
- The scenario of the tripartite car purchase agreement - in which the buyer, broker dealer and lender were engaged at arm's length and pursued their own commercial objectives – meant that those interests could come into conflict with each other.
- Importantly, the dealer broker's role as an intermediary between the customer and lender to find a finance package was an ancillary service to the sale of the car, it was not a service provided to the customer under any contract or separate reward.
- There was no express undertaking or assurance by the dealer broker to put its commercial interest aside in seeking a finance package for the customer.
- The dealer broker did not act as the agent (as understood in law) of the customer in the negotiation of the finance package with the lender, in particular, it did not have the customer's authority to enter into the contract with the lender. Rather, the dealer broker typically acted as the agent of the lender (per the view of the Law Reform Committee in its Tenth Report (on Innocent Misrepresentation) (Cmnd 1782) published in July 1962).
- While there may typically be an element of dependency or vulnerability on the part of a customer taking out a motor finance package, this is not indicative of a fiduciary relationship, in the absence of an undertaking of loyalty (referring to the decision of the Supreme Court of Canada in Galambos v Perez [2009] 3 SCR 247).
- Likewise, a customer reposing trust and confidence in a dealer broker to obtain the most suitable finance package for them will not typically go beyond that present in an arm's length transaction.
In the Supreme Court's view, the typical features outlined above were incompatible with the recognition of any obligation of undivided or selfless loyalty by the broker dealer to the customer when sourcing and recommending a suitable credit package [para 276]. In reaching this conclusion, the Supreme Court rejected the following arguments:
- The suggestion that a typical motor finance transaction should be viewed as two separate stages, namely: (1) negotiation of the sale of the car; and (2) sourcing and entering into the finance package (at which stage, the claimants submitted a fiduciary obligation arose). The Supreme Court found that a finance package on acceptable terms is an integral part of what has to be negotiated to bring the transaction to fruition in cases where the customer needs finance to obtain the car.
- The submission that the following factors automatically imply a fiduciary obligation on the dealer brokers by themselves: a statement by the dealer broker to the customer that it would seek the most suitable finance package for the customer's requirements and its role in selecting that package [para 281 and 282]; a relationship of trust and confidence [para 283]; the existence of an element of dependency or vulnerability on the part of the customer [para 284].
Having found that the dealer brokers did not owe a fiduciary obligation of undivided loyalty to the customers, the claim against the lenders based on accessory liability for the brokers' breach of fiduciary duty failed, and the Supreme Court allowed the lenders' appeal on this ground.
Does the law recognise a distinct tort of bribery?
The Supreme Court confirmed that the tort of bribery exists at common law, but liability for this is dependent on the recipient of the bribe being a fiduciary [para 207]. In the view of the Supreme Court, there is nothing inherently objectionable about paying commission, or about seeking to influence people's behaviour by giving them benefits of one kind or another, provided the recipient is not a fiduciary [para 161].
Importantly, the Supreme Court emphasised that a purely contractual duty to give "disinterested" advice is different in its legal nature and consequences from a fiduciary duty of loyalty [para 201]. This effectively overturns the decision of the Court of Appeal in Wood v Commercial First Business Ltd [2022] Ch 123 (see our blog post), which was treated as having established that a purely contractual duty to provide information, advice or recommendations on a disinterested basis (ie the "disinterested duty") was sufficient in itself to engage the civil law of bribery.
Given the Supreme Court's finding that the broker dealers did not owe a fiduciary duty to the customers, the claims against the lenders based on the tort of bribery failed and the Supreme Court allowed the lenders' appeal on this ground also.
However, the Supreme Court proceeded to consider what is required to negate secrecy where a fiduciary has received a payment, confirming that full disclosure of all material facts is necessary. What will amount to material facts will depend on the circumstances of the particular case [para 226].
The Supreme Court confirmed that the same requirement to disclose all material facts applies to both common law bribery claims and claims in equity (eg for breach of fiduciary duty). It referred to the decision in Hurstanger Ltd v Wilson [2007] 1 WLR 2351, which identified a separate category of case involving partially disclosed (or "half secret") commissions. The Supreme Court effectively overruled Hurstanger, finding that full disclosure of all material facts was required and that disclosure that a commission might be paid was not sufficient to negate secrecy and exclude liability for common law bribery [para 222].
Given that the Supreme Court found that the brokers were not acting as fiduciaries, its conclusions on the law in relation to secrecy are strictly obiter and not binding. That said, they are likely to be persuasive where these issues are considered by lower courts.
Mr Johnson's case under s.140A CCA
The Supreme Court held that the relationship between Mr Johnson and his lender was unfair under s.140A CCA and that the amount of the commission should be paid by the lender to Mr Johnson, with appropriate interest from the date of the credit agreement. The Supreme Court considered that the Court of Appeal made a number of errors in its judgment and so decided the issue of unfairness for itself rather than remitting the case to a District Judge [para 337].
The Supreme Court noted that the test of unfairness under s.140A CCA permits courts to take account of a very broad range of factors and is highly fact sensitive [para 297]. It agreed with the FCA that the following (non-exhaustive) factors point towards unfairness: the size of the commission relative to the charge for credit; the nature of the commission (because, for example, a discretionary commission may create incentives to charge a higher interest rate); the characteristics of the consumer; the extent and manner of the disclosure (including by the broker insofar as s.56 CCA is engaged); and compliance with the regulatory rules [para 319].
The Supreme Court highlighted the following factors as relevant on the facts of Mr Johnson's case:
- The size of the undisclosed commission (amounting to 25% of the advance of credit and 55% of the total charge for credit [para 323]). This was considered a "powerful indication" that the relationship was unfair.
- Failure to disclose the commercial tie between FirstRand and the dealer in which FirstRand had a right of first refusal, creating the false impression that it was offering products from a select panel of lenders and making an individual recommendation – this was "highly material" [para 333].
- The Supreme Court also considered it relevant that Mr Johnson was commercially unsophisticated and no prominence was given to the relevant statements in the documents [para 336].
The Supreme Court therefore made a final finding in respect of this ground and held that the relationship between Mr Johnson and his lender was unfair within s.140A CCA.
From the wide selection of remedies available to the Supreme Court under s.140B CCA it was determined that the lender should repay the amount of the commission with appropriate interest from the date of the credit agreement. Given the prominence of this judgment, this may form the benchmark for any future awards in similar claims brought in the civil courts.
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.
