Supreme Court resets rules on motor finance

On 1 August 2025, the Supreme Court handed down its much-anticipated judgment on the treatment of undisclosed commissions in motor finance transactions.

The judgment addressed the three conjoined appeals of Johnson v FirstRand Bank Limited, Wrench v FirstRand Bank Limited and Hopcraft v Close Brothers and provided guidance on the duties owed by car dealers when arranging finance for retail customers, while reinforcing well-established principles on the approach to determining claims of “unfairness” brought under s.140A of the Consumer Credit Act 1974 (CCA). 

In a decision that will be welcomed by lenders, the Supreme Court determined that no fiduciary or disinterested duty arises in a dealer-lender-customer car finance arrangement. As a consequence, any claim under the tort of bribery also failed. However, in relation to Mr Johnson, the Supreme Court did determine that there was an unfair relationship.

Background

The appeals arose from what many would describe as “typical” motor finance transactions. In each case, the claimant purchased a vehicle through a dealership, which arranged finance from a lender and received commission for the introduction. The commission structures allowed the dealers a level of discretion to set the interest rates.

The disclosure of the existence of commission varied across the transactions. In the case of Hopcraft, there was no mention of commission. In Wrench, it was referenced in general terms within the lender’s terms and conditions. In Johnson, it was disclosed in both the terms of the finance agreement and in a “Suitability Document” supplied by the dealer.

All claims were initially brought in the County Court, where the claimants alleged that the commissions constituted “bribes”, and that the lenders were liable either directly under the tort of bribery or as accessories to a breach of a fiduciary duty (by the motor dealer). Each claimant also alleged that their credit agreements were unfair, pursuant to s.140A of the CCA.

All the claims went to trial in either the Fast Track or the Small Claims Track and found their way to the Court of Appeal. On appeal, the Court of Appeal ([2024] EWCA Civ 1282) found in favour of the claimants, holding that:

• the dealers owed a fiduciary duty and breached the same, and by paying the commission the lenders were an accessory to the breach
• the dealers owed a duty to provide “disinterested advice” (“disinterested duty”) and the payment of commission constituted a bribe
• in the case of Johnson, which was the only case where the question of unfairness was an issue before the Court, the relationship was deemed to be unfair.

The controversial decision caused significant concern across the motor finance industry and the wider finance industry due to its broad implications for debtor-lender-supplier transactions.

The lenders appealed to the Supreme Court.

Key findings

1. No fiduciary duty

The central issue before the Supreme Court was whether car dealers owed fiduciary duties to customers when arranging finance. The Supreme Court went to great lengths in considering well-established case law on fiduciary duties, emphasising “...that a fiduciary acts for and only for another. He owes a duty of single-minded loyalty to his principal, meaning that he cannot exercise any power in relation to matters covered by his fiduciary duty so as to benefit himself ([90]).”

It was determined that in typical dealer–lender–customer transactions, no such duty arises ([285 – 288]). In doing so ([268 – 275]):

• the Supreme Court emphasised each of the three participants (dealer, lender, customer) were in pursuit of their own objectives. The dealer was pursuing its own commercial interest in trying to sell the car; the lender was seeking to provide finance to a customer; and the customer was seeking to buy a car at an affordable price
• the Supreme Court rejected the argument that the dealer’s role in sourcing finance could be separated from the sale of the vehicle and treated as a distinct fiduciary function
• whilst the car dealers were an intermediary when introducing the customers to finance, it was ancillary to the sale of the car. It was not a service provided to the customer under any contract or retainer for a separate fee
• at no time did the dealer give any express undertaking or assurance that it would put aside its own commercial interests in the transaction as a sale
• the Supreme Court rejected the Court of Appeal’s reliance on factors such as customer vulnerability or subjective trust and confidence, stating that these do not give rise to fiduciary obligations in the absence of an undertaking of loyalty

the Supreme Court drew a clear distinction between the commission disclosure obligations under the Financial Conduct Authority (FCA)’s Consumer Credit Sourcebook (CONC 4.5.3R)) and the equitable duties of fiduciaries. In short, CONC did not impose a fiduciary duty on dealers and the regulatory regime around the disclosure of commission was not premised on dealers being fiduciaries ([266]).

2. Bribery requires a fiduciary duty – no to “disinterested duty”

The Supreme Court reaffirmed that the tort of bribery remains part of English law but clarified when it would apply. The tort is synonymous with the payment of a “secret commission”.

In succinct terms, it ruled that claims for bribery could not arise unless the recipient of the payment (i.e. the dealer) owed a fiduciary duty to the claimant (i.e. the customer) ([207]). This marked a departure from and rejection of the Court of Appeal’s broader approach and, significantly, also reversed the decision in Wood v Commercial First Business Ltd, which allowed bribery claims to proceed based on a lesser duty “to provide information, advice or recommendations on a disinterested basis”.

The Supreme Court reasserted that the starting point in a claim of bribery is the breach of the “no conflict rule” incumbent upon a fiduciary, which can only be negated by full disclosure of the material facts ([217 – 226]). As the motor dealers were not fiduciaries, there was no need to assess the level of commission disclosure.

Consequently, the Supreme Court has drawn a line under reductive arguments concerning what amounts to “secrecy” in the context of secret commissions. Recent developments in case law following Wood and through a very literal interpretation of Tuckey LJ’s judgment in Hurstanger, had created an unhelpful “halfway house” between full disclosure and secrecy for the purposes of common law tort of bribery. To avoid a breach, the Supreme Court confirmed that what is required is full disclosure of all material facts and what is “material” will depend on the circumstances.

3. Johnson v FirstRand: a finding of unfairness

It was not a total victory for the lenders. While all three appeals were allowed so far as they were based on bribery or in equity, the Supreme Court upheld Mr Johnson’s claim under s.140A of the CCA, finding the relationship between him and FirstRand to be unfair ([340]).

However, it stopped short of adopting a “Plevin read across” which will be welcome news to the industry. The Supreme Court ruled that it was not possible to simply apply the reasoning of Plevin to the case of Johnson, where the products in question were materially different ([325]). This means that just because a commission was paid or the fact that there might not have been disclosure of the commission (or only partial disclosure), would not necessarily be sufficient to make the relationship unfair. Instead, they would be factors to take into account.

The Supreme Court instead referred to well-established principles when determining unfairness. Namely, the application of the test in each case will be a highly fact-sensitive exercise ([297]) considering all the relevant circumstances that went into the transaction.

In motor finance commission cases, the size of the commission; the nature of the commission; the characteristics of the consumer; the extent and manner of the disclosure; and compliance with the regulatory rules will all be relevant factors to consider ([319]).

In Johnson, the Supreme Court identified three key factors in concluding the agreement was unfair:

• the size of the commission (£1,650.95), which represented 25% of the loan and 55% of the total charge for credit
• the misleading nature of the Suitability Document provided by the dealer, which suggested impartiality and access to a panel of lenders, when in fact the dealer was contractually tied to FirstRand
• Mr Johnson’s financial unsophistication

The Court awarded Mr Johnson the amount of the commission plus interest but rejected any broader remedies such as rescission or damages beyond the commission itself.

Implications and next steps for the industry

The motor finance industry has litigated on these matters for several years. The decision is unlikely to provide a silver bullet to disputes. However, it has certainly narrowed the issues and will give Claims Management Companies and claimant firms real pause for thought.

The judgment is a marked rejection of the Court of Appeal’s approach to fiduciary duty. In doing so, the Supreme Court has provided clarity for lenders and dealers, supporting widely held views about each participant’s role in a dealer-lender-customer transaction. After considerable debate and uncertainty on the role of dealers and their duties owed to customers, the reaffirmation of what is required to be a fiduciary will be welcomed by the motor finance industry as well as the wider industry.

The assessment of unfairness remains a fact-specific exercise, and the courts can consider a broad range of factors – across the life of the credit agreement – when carrying it out. In the context of a motor finance transaction, the payment of a commission and / or its partial (or non) disclosure would not automatically render the finance agreement unfair but will be factors to take into consideration.

Following the Supreme Court’s ruling, the FCA announced that it will consult on a redress scheme by early October. If the compensation scheme goes ahead, the FCA expects the first payments to be made next year.

We continue to work with our clients across the finance industry to navigate the landscape. Should you wish to discuss any aspect further, please contact our team.