In what was a significant decision for the automotive industry, 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 industry: Hopcraft & Anor v Close Brothers Limited[2025] UKSC 33.
This article provides a high-level summary of the key elements of the decision. For a more detailed analysis of the decision, please see our full briefing here.
The decision
The three conjoined appeals considered the sale of motor finance to financially unsophisticated consumers each of which had bought a second-hand car from dealerships which also brokered their financing. Those dealers 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 held that the lenders were (i) not liable at common law for payment of a bribe; nor (ii) as accessories for breach of fiduciary duty by the car dealers, because the dealers had not assumed and did not owe any fiduciary duty to the buyer. However, the Supreme Court did allow the appeal of one claim brought by one of the claimant's under s.140A of the Consumer Credit Act 1974 (CCA).
Summary of the Supreme Court's decision
- The auto dealer brokers did not owe fiduciary duties. In the Supreme Court's view, the typical features of the motor finance transactions in the appeal were incompatible with the recognition of any obligation of undivided or selfless loyalty by the dealer to the customer when sourcing and recommending a suitable credit package (such that these cases did not give rise to a fiduciary duty). Having found that the brokers did not owe such fiduciary obligation, the claim against the lenders based on accessory liability for the dealer broker's breach of fiduciary duty failed.
- A common law tort of bribery exists (for fiduciaries). The Supreme Court confirmed that the tort of bribery exists at common law, but liability is dependent on the recipient of the "bribe" being a fiduciary. In the view of the Supreme Court, there is nothing inherently objectionable about paying commission, or seeking to influence people's behaviour by giving them benefits of one kind or another, provided the recipient is not a fiduciary. The Supreme Court's finding that the broker dealers did not owe a fiduciary duty to the customers meant that the claims against the lenders based on the tort of bribery also failed.
- One claim successful under s.140A of the Consumer
Credit Act. The Supreme Court held that the relationship
between one of the claimants, Mr Johnson, and his lender,
FirstRand, was unfair under s.140A CCA and that the amount of the
commission should be paid by FirstRand to Mr Johnson with
appropriate interest. The Supreme Court noted that the s.140A CCA
test of unfairness permits courts to take into account a very broad
range of factors and is highly fact-sensitive. 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.
In Mr Johnson's case, the following factors were seen as relevant in coming to the decision:
- The size of the undisclosed commission (25% of the advance of credit and 55% of the total charge for credit) was 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 was "highly material".
- Mr Johnson was commercially unsophisticated and no prominence was given to the relevant statements in the documents.
Conclusion
The decision represents a welcome return to the orthodox position in relation to how fiduciary duties arise and the law of common law bribery. As a result, motor finance commission claims against lenders are likely to be limited to statutory claims under s.140A CCA (with careful, if non-exhaustive, guidance on the factors to be taken into account for such claims being provided by the Supreme Court).
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. Whilst turning on its own facts, Mr Johnson's case may 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 any attempt to bring a representative action under CPR 19.8 (requiring claimants to have the "same interest in the claim").
Welcoming the Supreme Court's clarification of the law, the FCA has confirmed that it will consult, by early October 2025, on a redress scheme as part of its review into motor finance arrangements involving discretionary commission. The FCA has noted that it wants a comprehensive scheme which avoids the need for consumers to use other routes to secure compensation and to prevent large numbers of ongoing disputes in the courts. The scheme will be subject to a consultation period, with final steps confirmed afterwards. If approved, it is expected to be operational in 2026.
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.
