Secret Commissions – Supreme Court to hear appeal

The Court of Appeal’s decision 

On 25 October 2024, the Court of Appeal handed down its judgment in three linked appeals – Johnson v FirstRand Bank Ltd, Wrench v FirstRand Bank Ltd and Hopcraft v Close Brothers Ltd (collectively referred to as the Appeals).

In brief summary, the Appeals concerned customers who entered into hire-purchase agreements with car dealers to purchase their vehicles. The dealers then approached prospective lenders on the customers’ behalf to obtain finance offers, and in return were paid a commission by the lenders. The Court of Appeal found that the commissions in the Appeals were either not disclosed to the customer or were ‘partially’ disclosed (i.e. the credit agreements indicated that commission might be paid, but not the amount of the commission to be paid, or how it was calculated).  

The Court of Appeal found that the car dealers / credit brokers owed customers both a disinterested duty and a fiduciary duty, which meant that they were under an obligation to ‘fully’ disclose not just the existence of commission and/or or the existence and nature of the commission (as required by CONC 4.5.3R, when such knowledge “could actually or potentially (1) affect the impartiality of a credit broker in recommending a particular lender or (2) have a material impact on the customer’s transaction decision”), but also its amount, and how it was calculated. The Court also found that lenders would have primary liability where a ‘secret’ commission had been paid by the lender to the dealer. If the commission paid by the lender was ‘partially’ disclosed, then lenders would be liable only if the dealer owed the customer a fiduciary duty, as an accessory. In either case, the lender would have a responsibility to ensure appropriate commission disclosure to the customer.

The appeal

On 11 December 2024, the Supreme Court granted permission to appeal. The Supreme Court’s swift (less than three week) decision followed calls for expedition, including from the FCA, which wrote to the Supreme Court on 2 December 2024 noting (inter alia) the potential for the Court of Appeal’s decision to have “wider implications for other financial services markets regulated by the FCA that involve intermediary arrangements”. The Supreme Court’s announcement confirmed that a hearing will be listed at a date in Hilary Term 2025 (i.e. between 13 January and 16 April 2025).

This will be welcome news to the motor finance industry and beyond, given the potential impacts of the Court of Appeal’s decision, which could benefit from clarification both in terms of its potential scope (i.e. whether the decision applies to dealers, brokers, or beyond); and its substance (including in relation to how the relevant duties precisely arise, again both in the motor finance context (where the disclosure requirements described by the Court of Appeal are difficult to reconcile with the FCA’s regulatory standards in CONC 4.5) and, again, beyond).

The FCA’s letter requesting expedition noted that it may seek permission to intervene in the appeal. It will not only be the FCA which follows what comes next extremely closely, as the Supreme Court considers these issues.