UK Supreme Court Decision in Motor Finance Case Is Imminent

At a Glance

• The UK Supreme Court will shortly hand down judgment in a case which may have seismic repercussions, not just for motor dealers and lenders, but for all who receive commission or other financial advantage from someone other than their customer.
• Amongst other things, the Supreme Court’s decision will address the extent of the duty owed by motor dealers when acting as credit brokers; what amounts to sufficient disclosure to avoid liability of the broker or lender; and whether insufficient disclosure makes the relationship between broker and customer “unfair” for the purposes of the UK Consumer Credit Act 1974.
• This article sets out the background to a case which has led lenders to reserve up to £30 billion to cover potential liabilities. It also poses the kinds of practical questions which it is hoped the Supreme Court’s decision will answer. A further article summarising the Supreme Court’s decision and the market implications will follow.

It is not often that court cases have seismic repercussions for whole industries, but one such case is imminent. In July 2025, the UK Supreme Court is expected to give judgment in what have become known as the ‘motor finance cases’, following an appeal by lenders that was heard between 1 and 3 April 2025. The stakes are high.

The three conjoined cases concern the purchase of cars by retail customers in the very common circumstance that as well as selling a car the motor dealer arranges a loan. In such a transaction the dealer will typically make its money in two ways: (1) it will aim to sell the car at a profit; and (2) it will earn commission from the provider of the loan, which may be a bank or other nonbank lending business. It is the dealer’s receipt of commission from the lender which is the focus of these cases — key issues being:

• What is the legal status of the motor dealer when it receives commission?
• What should the motor dealer and lender disclose about commission, either in speech or writing, so that the dealer is not liable to the customer?
• Where liability ensues, what remedies are available?

The evidence of all three claimant customers (Miss Hopcraft and Messrs Wrench and Johnson), which was accepted by the Court of Appeal, is that they were not aware that the dealers were receiving commission. They thought that the only income the dealers earned was on the sale of the car. However, the cases differed on what each customer was told about the commission and how they were told it:

• Nothing was said to any of the customers orally; disclosures, if made, were in writing.
• Miss Hopcraft was not told anything about the car dealer earning commission, and none of the documents that she signed referred to it.
• Mr Wrench signed a hire purchase agreement that incorporated a clause that said: “A commission may be payable by us to the broker who introduced the transaction to us.” The Court of Appeal accepted that Mr Wrench didn’t read this clause and had no idea that the dealer was actually receiving a commission from the lender.
• Mr Johnson was presented with an enormous amount of paperwork, which amongst other things, did mention that the dealer would be receiving commission. However, it seems to have been accepted that Mr Johnson was not actually aware of the commission being paid and assumed that the dealer would earn its money only by making a profit on the cars.

The Court of Appeal’s judgment mentions some important legal concepts:

“Civil bribery”: this is the tort rather than the criminal offence. Civil bribery happens when a commission or other inducement is given by a third party to an agent, which is kept secret from the agent’s principal.¹ Where a civil bribe is made out, the agent as recipient and the third party as payer are both jointly and severally liable.

“Disinterested duty” means a duty to provide information, advice or a recommendation on an impartial or disinterested basis, free of any operative conflict of interest.

“Fiduciary duty” means a duty of loyalty and trust, and confidence with regard to the acts to be performed by an agent. The duty is more exacting than the disinterested duty; a fiduciary undertakes not just to be free of a conflict but to put his customer’s interests first, to the exclusion of his own. An agent may owe a disinterested duty but not a fiduciary duty. (A fiduciary will always owe a disinterested duty).

“Secret commission” is an amount paid to a broker that is not disclosed to the customer in any meaningful sense. The payment of a secret commission brings into play the law of civil bribery.

“Partial disclosure” is disclosure of fact sufficient to negate secrecy, but short of what is required to obtain the customer’s informed consent. A partial disclosure is enough to negate a finding of civil bribery; a lender in such a case will only be liable on a secondary basis in equity for being an accessory to the dealer’s breach of duty.

The Court of Appeal found that each of the motor dealers in question operated as credit brokers, owing both a disinterested duty and a fiduciary duty to the claimant customers. Motor dealers need to have secured the fully informed consent of their customer to any commission. Depending on the customer, this requires the disclosure of all material facts that might have influenced a borrower’s decision to enter into the loan:

• In Hopcraft, the court held that this was a case of secret commission. Accordingly, the tort of bribery was engaged, and the lender and motor dealer both had primary liability.
• In Wrench, the court said: “Lenders should not assume that they can escape primary liability for the payment of a secret commission merely by making a general reference to the possibility of such payment in a carefully concealed sub-clause of their standard terms, especially when there is an attempt to divert attention from it in the manner which occurred here.” The court found that a disclosure buried in the small print was not enough to negate secrecy. Again, the lender and motor dealer both had primary liability.
• In Johnson, the court held that the documents provided to the customer amounted to a partial disclosure, sufficient to negate secrecy. However, the partial disclosure did not result in the customer’s fully informed consent to the commission. In such a situation the motor dealer had primary liability for its breach of fiduciary duty while the lender was liable in equity as an accessory for procuring that breach. The Court of Appeal also found that the relationship between Mr Johnson and the lender was unfair under section140A of the Consumer Credit Act 1974 due to the lack of disclosure.

Analysis

So the gist of it is that all claimants succeeded in the Court of Appeal, albeit on different bases. It is important to note that the Court of Appeal considered that the dealers in all three cases were fiduciaries. While on the facts of the cases that determination only really mattered in Johnson (a partial disclosure case, meaning that the tort of civil bribery didn’t apply), it obviously has far-reaching implications, bearing in mind the huge numbers of car purchases which involve loan finance. Parallels with the UK payment protection insurance scandal have been drawn, with lenders reported to have projected losses of up to £30 billion.

The motor dealers obtained permission to appeal the Court of Appeal’s decisions to the Supreme Court. The Financial Conduct Authority (FCA) and the National Franchised Dealers Association were allowed to intervene and make their own submissions in the case. Other applications to intervene (including by HM Treasury) were refused.

The issues that the Supreme Court’s judgement will address are:

1. When acting as credit brokers, do car dealers owe consumers a disinterested and/or fiduciary duty to provide information, advice or recommendation?
2. If so, were the payments of commissions by the lenders to the motor dealers secret such that the lenders become primary wrongdoers?
3. Can the lenders be liable in the tort of bribery? If so, what is the correct approach to remedies?
4. If there was sufficient disclosure of the commission to negate secrecy, was there insufficient disclosure to procure the consumers’ fully informed consent to the payment such that the lenders are liable as accessories for procuring the credit brokers’ breach of duty?
5. Can insufficient disclosure also suffice to make the relationship between lender and consumer “unfair” for the purposes of the Consumer Credit Act 1974?

It is hoped that, by addressing these issues, the Supreme Court’s judgment will provide the industry with answers to (at least) the following practical questions:

• Is bribery an actionable tort, or is its only place as part of the criminal law? This seems unlikely, but it is possible and was a submission made by the National Franchised Dealers Association.
• Is it realistic to suggest that a motor dealer has limited duties to look out for their customer’s interests when selling them a car, but that onerous duties of care and disclosure apply when arranging with a lender to fund the purchase?
• When will a fiduciary duty arise? Do all agents owe fiduciary duties? Can someone be a fiduciary in a part of a relationship or is it, by its nature, applicable only to an entire relationship between a customer and their agent? What can the parties do (should they choose to) to ensure that a fiduciary obligation doesn’t arise?
• Will the distinction between secret commission and partial disclosure be maintained? And how much will lenders and brokers be able to rely on small print? What if anything will they need to do to bring small print to the attention of the customer?
• To what extent are a customer’s vulnerabilities relevant to the extent of disclosure that should be made to them and the duties they are owed?
• What remedies are available for breach of fiduciary duty and how do they differ from the remedies available in the tort of bribery?

What This Means for Those Receiving Commission From Non-customers

While the judgment will be most immediately relevant to motor finance providers (and those that have a financial interest in them), all who receive commission or other financial advantage from someone other than their customer should look out for the implications for their business model.

Many observers believe that the FCA’s submissions as intervener are likely to carry weight, and these strike a middle ground. On the one hand, the FCA argues that the tort of bribery should be retained, in contrast to the lenders who would abolish it. On the other hand — and this surprised many — it contends that motor dealers are typically not fiduciaries ‘…because the provision of such a service does not give rise to a fiduciary duty in the sense of acting in the consumer’s interest to the exclusion of the broker’s own interests.’ In circumstances where regulated activities are being undertaken for retail customers, it is really quite unusual to see the FCA placing limits on the extent to which primacy should be given to those retail customers’ interests. The practical difficulty with denying a fiduciary duty is that in cases of partial disclosure the customer will not have a remedy, with the FCA suggesting that “…negating secrecy will be a case-by-case assessment informed by both the content of the pre-contract disclosure materials and the manner in which terms were presented to the consumer.” This formulation will leave plenty to argue about.

A summary of the Supreme Court’s decision with comment on its implications will follow when the judgment is available.