The following article was contributed by Tom Webster, Chief Commercial Officer at Sentry Funding.
A Court of Appeal ruling last week is a very positive development for the many consumers currently seeking justice after discovering they were charged commissions that they were not properly told about when they took out motor finance.
With a large number of such claims being brought in the County Courts, the Court of Appeal heard three cases jointly in order to deal with some key issues that commonly arise.
In Johnson v Firstrand Bank Ltd [2024] EWCA Civ 1282, Wrench v Firstrand Bank Ltd and Hopcraft v Close Brothers, the Court of Appeal foundin favour of all three claimants, allowing their appeals.
The cases concerned the common scenario in which a dealer asks the consumer if they want finance; and if so, the dealer gathers their financial details and takes this information to a lender or panel of lenders.
The dealer then presents the finance offer to the consumer on the basis that they have selected an offer that is competitive and suitable. If the consumer accepts it, the dealer sells the car to the lender, and the lender enters into a credit agreement with the consumer.
The consumer will be aware of the price for the car, the sum of any downpayment, the rate of interest on the loan element of the arrangement, and how much they will have to pay the lender in instalments over the period of the credit agreement. They would expect the dealer to make a profit on the sale of the car. But – at least until the Financial Conduct Authority introduced new rules with effect from 28 January 2021 – the consumer might be surprised to discover that the dealer who arranged the finance on their behalf also received a commission from the lender for introducing the business to them; which was financed by the interest charged under the credit agreement.
In this situation, the dealer is essentially fulfilling two different commercial roles – a seller of cars, and also a credit broker – in what the consumer is likely to see as a single transaction. The commission is paid in a side arrangement between lender and dealer, to which the consumer is not party. Sometimes there might be some reference to that arrangement in the body of the credit agreement, in the lender’s standard terms and conditions, or in one of the other documents presented to the consumer. But even if there is, and even if the consumer were to read the small print, it would not necessarily reveal the full details – including the amount of the commission and how it is calculated.
Turning specifically to the three cases before the Court of Appeal, in one of these, Hopcraft, there was no dispute that the commission was kept secret from the claimant. In the other two, Wrench and Johnson, the claimant did not know and was not told that a commission was to be paid. However, the lender’s standard terms and conditions referred to the fact that ‘a commission may be payable by us [ie. the lender] to the broker who introduced the transaction to us.’
In Johnson alone, the dealer / broker supplied the claimant with a document called ‘Suitability Document Proposed for Mr Marcus Johnson’, which he signed. This said, near the beginning, ‘…we may receive a commission from the product provider’.
Each of the claimants brought proceedings in the County Court against the defendant lenders seeking, among other things, the return of the commission paid to the credit brokers. All three claims failed in the County Courts, but in March this year, Birss LJ accepted their transfer up to the Court of Appeal, directing that the three appeals should be heard together – and acknowledging that a large number of such claims were coming through the County Court, and an authoritative ruling on the issues was needed.
After considering the issues in detail, the Court of Appeal allowed all three appeals. It found the dealers were also acting as credit brokers and owed a ‘disinterested duty’ to the claimants, as well as a fiduciary one. The court found a conflict of interest, and no informed consumer consent to the receipt of the commission, in all three cases. But it held that that in itself was not enough to make the lender a primary wrongdoer. For this, the commission must be secret. If there is partial disclosure that suffices to negate secrecy, the lender can only be held liable in equity as an accessory to the broker’s breach of fiduciary duty.
The appeal court found there was no disclosure in Hopcraft, and insufficient disclosure in Wrench to negate secrecy. The payment of the commission in those cases was secret, and so the lenders were liable as primary wrongdoers. In Johnson, the appeal court heldthat the lenders were liable as accessories for procuring the brokers’ breach of fiduciary duty by making the commission payment.
This ruling will prove hugely significant to the large number of similar claims currently being brought in the lower courts; and Sentry Funding is supporting many cases in which consumers were not aware of the commissions they were being charged when they bought a car on finance.
We can now expect many more such claims to start progressing through the County Courts.
