On 25 October 2024, the Court of Appeal handed down its judgement in respect of the conjoined appeals of Johnson v FirstRand Bank Limited (London Branch) T/A Motonovo Finance) (“Johnson”), Wrench v FirstRand Bank Limited) (“Wrench”) and Hopcraft v Close Brothers Ltd (“Hopcraft”) allowing the claimants appeals.

In each case the Court ruled that the car dealers should have properly disclosed to the customer that they were receiving a commission from a lender providing the motor finance to the customers and that the customers should have been able to give informed consent in respect of the same.

This case will have wide implications, far beyond just the car industry. Broking commission is a common element of credit so these requirements could be applied to any situation where a company has received a commission for introducing their customers to a finance provider.

Dealers and lenders should carefully assess their sales practices to understand the level of transparency around their historic commission charging. Debt purchasers should also review their acquired books.

What were the facts?

In each case the claimant customers engaged the car dealers to broker hire-purchase agreements on the customers’ behalf so that they could purchase a second-hand car. Each car dealer in turn acted as a credit broker as well as seller of the car, and in each case the dealers received a commission from a lender for introducing the customers to them based upon the interest due under the credit agreement.

What were the commission structures?

So, what happened?

The customers contested the dealers’ actions were unlawful and brought forward their cases based on common law principles. Most notably that the car dealers, by acting as credit brokers, owed the customers a “disinterested duty” as set out in Wood v Commercial First Business Ltd and that due to their role making them de-facto agents, the dealers owed the customers a duty to provide them with information in an impartial way.

This argument was ultimately accepted by the Court who allowed all three appeals in favour of the customers, stating that in each case the dealers had owed the customers the disinterested duty, as well as a fiduciary duty – whereby the dealers should have acted with loyalty and avoided conflicts of interest. The Court found in all three cases that there was a conflict of interest and no informed consent by the customers in respect of the dealers receiving a commission.

Where does liability sit?

For Hopcraft and Wrench - both of which were deemed as secret commission cases - it was found that primary liability arose for the lenders. In Hopcraft there was no disclosure whatsoever and in Wrench the disclosure was “buried” to the extent it was still considered a secret commission. As such, it was clear that the court deemed a statement in the terms and conditions that commission may or will be paid does not have the effect of negating secrecy. It's well understood that customers do not read small print and as such would have been unaware of the commission unless it had been pointed out to them.

In Johnson the dealer had also provided the customer with an additional document that stated it may receive a commission, along with it being stated in its standard terms. This made Johnson a case of partial disclosure which was still deemed insufficient for informed consent. This resulted in the lender only being liable as an accessory to the car dealer’s breach of the fiduciary duty.

A further, somewhat familiar, point was considered in respect of Johnson and that was whether the commission arrangement created an unfair relationship for the purposes of s140A of the Consumer Credit Act. You may remember that this was the basis of the commission refunds for PPI under the Plevin ruling. In the Johnson case, the Court stating that the none or only partial disclosure of commission did not alone constitute an unfair relationship between the lender and consumer. However, in this case due to commission paid being very high in this instance (25% of the sum borrowed), then that combined with only partial disclosure of the commission arrangement rendered the relationship unfair. The remedy for this element was that commission together with interest had to be repaid to the customer.

A point of major significance in this ruling is that this judgement was decided on common law principles rather than FCA rules. This was highlighted in a speech by The FCA Chief Executive, Nikhil Rathi who stated the FCA are watching closely to see if this is the last word from the Court on this matter. Mr Rathi also reiterated the FCA’s focus is on ensuring customers were treated fairly and that the motor finance industry continues to function well. This will see lenders face an increased need to examine how they currently disclose commissions to customers and how they have made disclosures in the past. Firms will need to ensure they are not only compliant with common law principles on the matter, but also the Consumer Duty as introduced in 2023.

Nikhil Rathi also stated that whilst the judgement did not directly relate to discretionary commission arrangements (“DCAs”), it still related to the ongoing review of whether UK customers have been overcharged because of historic DCAs. With the pause on the 8-week deadline for firms to respond to DCA complaints being extended into December 2025, it is still to be decided whether other commission arrangements – like those in this case – should be included in an expanded complaint handling pause. However Nikhil Rathi also reminded firms that this judgement has made the law clear, and should this be the last word on such matters, firms will need to handle applicable complaints in line with the law.

What’s next?

We asked our litigation team what they think might be the next steps for this ruling and Joanna Fulton, a leading expert in this area said:

“The lenders have indicated an intention to apply for permission to appeal from the Supreme Court. They have 28 days to do so from the date of the Court of Appeal judgment.  Until then, the Court of Appeal's decision will be binding until the outcome of any appeal that is permitted to proceed.

The judgment has led many to speculate that we could see a deluge of claims similar to PPI.  This would potentially take the form of a group claim: a group litigation order in England, or a group procedure order in Scotland.  These claims are typically funded and run on the basis of ‘no win no fee’. Many of the firms with experience of group actions are advertising for motor finance claims, including in Scotland. Group claims are a mature feature of consumer litigation in England, and increasingly being adopted in Scotland. They often involve very large numbers of consumers and therefore pose a significant threat.”

Burness Paull’s market leading financial services regulatory team can help you undertaken an analysis on your historic procedures to help identify any areas of potential exposure following this outcome and take steps to ensure you are prepared for any claims that might arise.

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