Supreme Court Judgment on Motor Commission

The hallmark of a fiduciary relationship is a duty to act with single-minded or undivided loyalty and the performance of that duty means that a fiduciary’s personal interest is not allowed to play a part.  It does not arise simply because there may be some level of trust placed in someone, nor because unsophisticated or vulnerable customers use the services of someone.  In a motor finance arrangement, the relationships between the dealer, the lender and the customer are all being engaged at arm’s length in the pursuit of their own commercial objective.  The dealer is self-interested in all aspects of the arrangements being put in place in order to sell the car.  There is no scope to divide the relationship between the sale of the car and the introduction of finance.  No onlooker could reasonably think of any of the dealer, lender or customer to the negotiation as doing anything other than considering their own interests.

There is no separate disinterested duty where that does not depend upon a fiduciary duty.  The Court of Appeal’s decision in Wood that established this line of reasoning was wrong.  The law of bribery will only therefore apply where there is a breach of a fiduciary duty. 

The reasoning in the case of Hurstanger was wrong in drawing a distinction between fully secret and partially secret commission. Where there is a fiduciary relationship and the law of bribery then applies, the key question is whether the breach has been negated by full disclosure of all material facts so that the principal can be shown to have agreed to the profiteering by its fiduciary.  What might be needed to be disclosed will depend upon the nature of the relationship and the nature of the profit the fiduciary is claiming to be able to keep.  There was no need in the case of the motor dealer arrangements to consider the expected or required level of disclosure further as there was no fiduciary duty in the first place. 

Although there was no fiduciary duty, the relationship between Mr Johnson and FirstRand was found to be unfair under section 140A of the CCA on the particular facts of the case. In its written intervention, the FCA set out factors which it said will normally be relevant in assessing whether an unfair relationship could arise: 

• the size of the commission relative to the total charge for credit (or to the loan advance amount);
• the nature of the commission;
• the characteristics of the consumer;
• the extent and manner of the disclosure; and
• compliance with regulatory rules.  

The Court agreed that this non-exhaustive list will normally be relevant in the fact-specific assessment. It stressed that the non-disclosure (or partial disclosure) of commission will not necessarily make the relationship unfair.  It also made it clear that there was an “overall balancing exercise required” to determine whether there is an unfair relationship.  

The Court made clear that it is not possible simply to apply the reasoning of the Supreme Court in Plevin to the motor finance market, given the cases are concerned with different products in different markets. But the Court considered the facts of Mr Johnson’s case to give rise to unfairness due to the combination of the following:

• The commission was 26% of the loan advance amount (and 55% of the total charge for credit) which the Court said was high.  It felt that this level of commission is a “powerful indication” that the relationship is unfair.
• There was a commercial tie between the dealer and lender which gave the lender first refusal.  This was not consistent with information that had been disclosed to the customer in documentation which had created a false impression that the dealer was selecting the best deal from a panel of lenders. This was “highly material” to the issue of unfairness.
• The Court found that it counted against the customer that he had not read any of the documentation given to him.  However, the Court found that the customer was financially unsophisticated and the way the information had been presented, with a lack of prominence given to the commission arrangement, made it questionable whether a lender could reasonably expect a customer to read and understand the documentation.  Therefore, the way in which information has been disclosed is also important.  

• The scheme will not be limited to discretionary commission arrangements (DCAs), but will also consider which other factors to include where a DCA was not involved
• The FCA will consult on how firms should assess whether the relationship between borrower and lender is unfair, but the indication appears to be that this will be framed around unfair relationships requirements.  They will consult on whether it will be opt in or opt out;
• On the calculation of redress, the FCA says it will be informed by the degree of harm suffered by the consumer as well as ensuring access to affordable loans for motor vehicles.  It will consider the SC remedy of repayment of the full commission repayment, as well as alternative approaches.  It will also consider de minimis levels. 
• The extended deadline for responding to motor finance complaints (4 December 2025) will remain in place and it likely to be extended.
• Consultation is expected to open by early October 2025 and run for 6 weeks.  A scheme is expected to launch in 2026.