Summary of the Car Finance dealer commission appeal ruling
https://supremecourt.uk/uploads/uksc_2024_0157_0158_0159_judgment_2bb00f4f49.pdf
Summary
This UK Supreme Court ruling addressed three conjoined appeals concerning the lawfulness of undisclosed or partially disclosed commissions paid by motor finance lenders to dealers in hire purchase agreements. The appellants—Close Brothers Ltd and FirstRand Bank Ltd—challenged findings that such commissions were bribes or secret profits in breach of fiduciary or “disinterested” duties owed by dealers to customers. The judgment provides a definitive legal stance on fiduciary duties, the tort of bribery, and unfairness under the Consumer Credit Act 1974 (CCA), with significant implications for consumer credit regulation and the motor finance industry.
Key Take Aways
- The Court confirmed that motor dealers, when arranging finance, do not automatically owe fiduciary or “disinterested” duties to customers.
- The continuing role of the dealer as a seller precludes imposition of such duties within standard three-party motor finance transactions.
- The Supreme Court rejected the Court of Appeal’s finding that commission payments breached fiduciary or “disinterested” duties.
- The existence of an arm’s length commercial relationship between dealer and customer was deemed incompatible with fiduciary obligations.
- The Court retained the tort of bribery as a valid cause of action but narrowed its applicability.
- Disclosure of possible commission, even without full details, may suffice to avoid characterisation as a secret commission or bribe.
- Dishonest assistance liability in equity was confined to cases where a true fiduciary duty exists and is breached knowingly.
- The court ruled that the legal framework already adequately protects consumers via statutory regulation and the FCA’s CONC rules.
- Mr Johnson’s case was the only one to proceed under the CCA; the Court upheld that his consumer-lender relationship was unfair due to high commission and lack of transparency.
- Remedies for unfair relationships under the CCA do not require breach of fiduciary duty or bribery.
- The judgment underscores the importance of distinguishing contractual, regulatory, and equitable obligations in consumer finance.
New Case Law
1. No Fiduciary Duty in Standard Dealer-Lender-Customer Motor Finance Transactions
- New Rule: Motor dealers acting as credit brokers in typical three-party hire purchase arrangements do not owe fiduciary duties or “disinterested” duties to customers.
- Reasoning: The dealer’s continuing status as a seller in an arm’s length transaction is incompatible with the strict no-conflict duty required of fiduciaries.
- Impact: Overturns the Court of Appeal’s broader interpretation; limits liability for secret commissions in consumer credit settings.
2. Tort of Bribery Narrowed
- Confirmed: The tort of bribery continues to exist, despite arguments to abolish it.
- Clarified: A “disinterested duty” alone is not sufficient to ground a bribery claim. Only full fiduciary duty will trigger the bribery tort.
- Secrecy standard: Generic disclosure (e.g., “a commission may be paid”) may suffice to defeat a bribery claim—full disclosure of the amount is not always required.
3. Limits on Dishonest Assistance Claims
- New Clarification: Lenders paying commission cannot be held liable under dishonest assistance unless:
- A fiduciary duty exists,
- The fiduciary makes an unauthorised profit,
- The lender knowingly assists, and
- The assistance is dishonest.
- Rejected: The idea that a disinterested duty could support equitable liability for dishonest assistance.
4. CCA Section 140A: Commission and Tied Arrangements Can Make a Relationship Unfair
- Upheld: Mr Johnson’s CCA claim succeeded, despite no fiduciary or bribery liability.
- Court found:
- High undisclosed commission,
- Commercial tie (dealer required to send business to FirstRand),
- Lack of transparency,
- All combined to make the relationship unfair under the CCA.
- New Confirmation: Regulatory breaches (CONC) and commercial arrangements can contribute to a finding of unfairness under section 140A.
5. Rejects Expansion of Fiduciary Law into Heavily Regulated Commercial Areas
- Principle: Courts should not impose fiduciary-like duties where comprehensive statutory and regulatory regimes (like the FCA’s CONC) already exist.
- Consequence: Equity will not be used to create “super-rights” beyond the CCA and FCA framework.
Summary of New Precedents Set
| Legal Area | Precedent Set |
|---|---|
| Fiduciary Law | No fiduciary duty in dealer-lender-customer HP sales |
| Tort of Bribery | Survives, but only applies where full fiduciary duty exists |
| Dishonest Assistance | Requires actual fiduciary breach; no disinterested duty base |
| CCA – Unfair Relationships | High commissions + commercial tie + lack of disclosure = unfair |
| Equity vs Regulation | Courts defer to FCA/CCA frameworks in consumer finance |
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