Motor Finance Cases – Upcoming Supreme Court hearing

The motor finance commission cases concern the commission paid to car dealerships by a lender for arranging the purchase of a vehicle on finance.  This was often – but not necessarily – done by way of a "discretionary commission arrangement" (or DCA), whereby the dealer (properly speaking, the broker) was permitted to negotiate the interest rate on behalf of the lender, and was paid a commission on the basis of that rate.  The higher the rate, the greater the level of commission. 

In January 2021, the FCA banned DCAs in the motor finance market.  They also set out more prescriptive rules on the disclosure of commission arrangements in consumer finance products more generally. 

Since then, there has been a wave of claims brought by consumers who purchased their cars on finance prior to 2021 before the courts and the Financial Ombudsman Scheme (FOS)^[3].  They argue that they have been overcharged on their interest rate and are entitled to compensation. 

Three such claims – Johnson, Wrench and Hopcraft – were unsuccessful in the County Court but each was appealed and the cases were heard together in the Court of Appeal in July 2024.   

Meanwhile, the FCA have been providing ongoing guidance to consumers and lenders on how to log and administer complaints.^[4]  The FCA have also been paying close attention to the legal proceedings which are afoot, including applying (successfully) to intervene in the Johnson, Wrench and Hopcraft Supreme Court hearing.  The High Court's judicial review of the FOS' decision in Clydesdale Financial Services Limited^[5], in which it sided with the FOS on its approach to redress, is also separately on appeal.  The FCA will likely wish to take into account the outcome of both appeals when considering the redress methodology in any redress scheme.

The Court of Appeal judgment in Johnson, Wrench and Hopcraft was keenly anticipated, because of the precedent it would set for other motor finance cases and in establishing the framework of any FCA redress scheme.

The three cases were subtly different: 

·        In Hopcraft, the commission was kept entirely secret from the claimants.

·        In the cases of both Wrench and Johnson, the claimant did not know and was not told that a commission was to be paid, but the lender’s standard terms and conditions made reference to the payment of a commission.  

·        In Johnson, the dealer also supplied the claimant with a separate document (signed by the claimant), stating that the dealer may receive a commission from the lender, and it was conceded at first appeal that this was a case of partial disclosure (i.e. the commission was "half-secret"). 

The Court of Appeal issued a landmark decision. It held as follows:

1. The dealers in each case were acting as brokers and owed both a "disinterested duty" (to provide information and advice on an impartial basis) and a fiduciary duty to the consumers.
   
   
2. Where there was no disclosure of the commission arrangement whatsoever (as was plainly the case in Hopcraft), the dealer was in breach of its disinterested and fiduciary duties and this amounted to a "secret commission".  Importantly, in Wrench, even though the customer was provided with a document that said that commission "may" be paid, this did not negate the secrecy, because it was not sufficient to bring the "salient facts to the attention of the borrower in a way which made their significance apparent."^[6]
   
   
3. Where there was partial disclosure of the commission (also referred to as a "half-secret" commission), the dealer would still be in breach of their fiduciary duty if they did not obtain the fully informed consent of the consumer.  Such was the case in Johnson. The Court cited guidance from the Court of Appeal in Hurstanger^[7], which suggested that the relevant principle is that informed consent can only be obtained if the consumer had consented "with full knowledge of all the material circumstances and of the nature and the extent of [the broker's] interest."^[8]
   
   
4. In the case of a fully secret commission, a lender has primary liability for the wrongdoing, because the secret commission is akin to a bribe.  In both Hopcraft and Wrench, the lenders accordingly had primary liability.   
   
   
5. In the case of a half-secret commission, a lender may have an accessory liability for the broker's breach of fiduciary duty, if they can be shown to have been dishonest in the sense contemplated in Twinsectra^[9] –  that is, the accessory must be aware of the facts which give rise to the breach of fiduciary duty, or deliberately turn a blind eye to such a breach.  The facts in Johnson were such that the Court of Appeal did not hesitate in finding that the lender had been dishonest, and was therefore an accessory to the breach.  We discuss the issue of dishonesty further below.
   
   
6. Finally, it was held in Johnson that the relationship between customer and lender was unfair for the purposes of ss.140A-B of the Consumer Credit Act 1974, with the effect that the Court was empowered under s.140B(1)(a) to require the lender to make a payment equivalent to the value of the commission.  

One of the ambiguities arising from Johnson was the question of what constitutes dishonesty for the purposes of establishing accessory liability in a half-secret commission case.

Although Johnson appeared to suggest that dishonesty (of the Twinsectra kind) was required, the judgment was not abundantly clear.  At paragraph [137], of Johnson, Zacaroli LJ had said as follows:

"In a “half-way house” case, which we must assume Johnson to be for the purposes of this issue, the fact that there is no informed consent follows automatically from the finding that there was only partial disclosure, and on that analysis, the lender must be liable as an accessory for procuring the breach of duty. This appears to be consistent with the decision in Hurstanger."^[10]

He then went on to say:

"[j]ust in case this is wrong, however, and it is incumbent on the claimant to prove that the lender knew or turned a blind eye to the fact that the borrower’s informed consent had not been obtained, we will consider the state of FirstRand’s knowledge concerning the extent of any disclosure."^[11]

Taken in isolation, these paragraphs seemed to suggest that the Court had established that the requirements for accessory liability had been altered in the broker commission context by Hurstanger (such that awareness of the breach, or turning a blind eye to it, was not required).  The jurisprudential difficulties here were expressly acknowledged in the Court's conclusion, where they noted that:

"the “half-way house” category of case recognised for the first time in Hurstanger, where there is only disclosure of some material information, gives rise to numerous difficulties, not least in terms of defining when the lender will be held liable as an accessory and how the dishonesty requirement, explained in Twinsectra (but nowhere mentioned in Hurstanger), is satisfied in that scenario (especially when the lender’s behaviour is not as blameworthy as we have found FirstRand’s to have been)."

In the recent case of Expert Tooling, the Court of Appeal sought to provide some clarity on the position.  The Court held that, taking Johnson in its full context, it was not attempting to establish some "new species of equitable liability upon the payer of a partially disclosed commission that does not require dishonesty on the part of the payer."^[9]  Rather, it was indeed endorsing the position that dishonesty as traditionally articulated in Twinsectra was required to establish accessory liability.  It was for precisely this reason that the Court had identified, for example, that the lender's engagement terms with the dealer in Johnson may in fact have discouraged the dealer from disclosing any commission to a customer.^[10]

It is noteworthy that, in Expert Tooling, the Court expanded on the decision at first instance that there had been no dishonesty on the part of the lender by enumerating certain evidential factors which indicated the absence of dishonesty (as contrasted with the position in Johnson).  These included, for example:

a) that (unlike in Johnson), the broker in Expert Tooling was not being paid by the customer at all, and it "was naturally to be expected that it would be paid for its services by the suppliers with whom Tooling contracted"^[11]; and

b) similarly, there was no equivalent of the "ties" between the lender and dealer in Johnson (namely, that the lender in Johnson had a right of first refusal on all customer referrals from that dealer).   

It is important to note that dishonesty had not originally been pleaded by the claimant in Expert Tooling and the issue was not put to the defendant's only witness.  The first instance court had made a finding that there was dishonesty, but this was without extensive factual investigation on this issue.  The Court of Appeal was considering the issue in the context of a request by the appellant (the claimant) to amend its grounds of appeal to include the question of whether the respondent had been dishonest.  It declined to do so, in part because this would require more extensive investigation of the lender's state of mind at trial, and the Court was unwilling to allow this for reasons of finality in litigation. 

However, the guidance given by the Court as to the sorts of factors which would be relevant to whether a lender had been dishonest will no doubt be of some interest to lenders facing potential accessory liability in broker commission claims (even if these factors are not of assistance to the lender in Johnson itself). 

We expect that the Supreme Court will want to give a definitive view on the circumstances in which the payment of commission by a lender to a broker will give rise to an accessory liability.  This will be of obvious significance to any FCA redress scheme intended to deal with motor finance claims.    

In the meantime, we note that the High Court has issued a ruling in Angel & Ors v Black Horse Ltd^[12], paving the way for more than 5,800 claims against eight motor finance companies to be streamlined and brought using omnibus claim forms, rather than separate individual claim forms.  We anticipate that the volumes of claims and FOS complaints will continue to increase, pending the FCA's finalisation of any redress scheme proposals. 

Consumer finance providers (in the motor finance industry and beyond) will no doubt be eagerly awaiting the Supreme Court's decision and thinking about steps they will need to take to ensure that their procedures and products meet the Court's and regulators' expectations.

Our expert team would be happy to answer any questions you may have, including on any consequential issues which may arise, for example in the context of specialty finance transactions (for which, see our briefing here).

[1] Heard together in the Court of Appeal; Johnson v FirstRand Bank Limited, Wrench v FirstRand Bank Limited and Hopcraft v Close Brothers [2024] EWCA Civ 1106.
[2] Expert Tooling and Automation Limited v Engie Power Limited [2025] EWCA Civ 292.
[3] On 9 May 2024, the FOS announced that it was dealing with around 20,000 open complaints related to car finance commission.
[4] [1] In December 2024, the FCA extended the period for firms to respond to complaints about motor finance arrangements not involving a DCA until 4 December 2025.
[5] R (Clydesdale Financial Services Ltd) v Financial Ombudsman Service Ltd [2024] EWHC 3237 (Admin). 
[6] Johnson at [118].
[7] Hurstanger v Wilson [2007] EWCA Civ 299; [2007] 1 WLR 2351.
[8] Hurstanger at [34].
[9] Twinsectra Ltd v Yardley and others [2002] UKHL 12, [2002] 2 AC 164.
[10] Johnson at [137].
[11] Ibid. at [137].
[12] Expert Tooling, at [159].
[13] See Johnson at [129]; the lender's terms and conditions included the provision that "If requested to do so by the customer, you will inform the customer of the amount of any commission and or other benefits payable by us to you in relation to the prospective or actual regulated" [sic] (emphasis added).
[14] Johnson, at [137].
[15] Angel & Others v Black Horse Limited & Others [2025] EWHC 490 (KB).