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UK Supreme Court Hears Crucial Case on Motor Finance Commissions

By Tom Webster |
April 10, 2025

UK Supreme Court Hears Crucial Case on Motor Finance Commissions

The following was contributed by Tom Webster, Chief Commercial Officer for Sentry Funding.

At the start of this month the Supreme Court heard an appeal in three motor finance test cases with huge ramifications for lenders.  

In Johnson v FirstRand Bank Ltd, Wrench v FirstRand Bank Ltd and Hopcraft v Close Brothers Ltd, the appeal court held last October that the car dealers involved were also acting as credit brokers, and owed a ‘disinterested duty’ to the claimants, as well as a fiduciary one. It 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. However, if there is partial disclosure that suffices to negate secrecy, the lender can still 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 held that the lenders were liable as accessories for procuring the brokers’ breach of fiduciary duty by making the commission payment.

The appeal court ruling sent shockwaves through the industry, and the two lenders involved, Close Brothers and FirstRand Bank (MotoNovo), challenged the decision in a three-day Supreme Court hearing from 1 – 3 April. Commentators have pointed to the huge significance of the case, which could lead to compensation claims of up to £30bn. Close Brothers is reported to have set aside £165m to cover potential claims, while FirstRand has set aside £140m. Other lenders are reported to have set aside even more substantial sums:  £1.15bn for Lloyds, £290m for Santander UK and £95m for Barclays. 

The Financial Conduct Authority is considering setting up a redress scheme to deal with claims, which is currently on hold as it awaits the judgment of the Supreme Court this summer.

Will the Supreme Court uphold the lenders’ appeals, or will the Court of Appeal’s logic win out? My own view is that the appeals are likely to fail, and October’s Court of Appeal decision will be upheld. Lenders will therefore face substantial compensation bills as they find themselves faced with a huge number of claims. What’s more, the ramifications of this significant Supreme Court ruling are likely to reach beyond the motor finance sector, to other areas where businesses provide credit through intermediaries who take a commission, without making that crystal clear to the consumer.

Sentry supports litigation funders looking to deploy funds into cases in which consumers were not aware of the commissions they were being charged when they bought a car on finance, as well as a number of other miss-selling and hidden commission claim types.

About the author

Tom Webster

Tom Webster

Tom is the Chief Commercial Officer for Sentry Funding

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Commercial

Innsworth Loses High Court Challenge to £200M Mastercard Settlement Distribution

By John Freund |

The High Court has rejected litigation funder Innsworth's judicial review challenge to the Competition Appeal Tribunal's distribution of the £200M Merricks v Mastercard settlement, ending the first substantive test of a CAT settlement decision and handing class representative Walter Merricks what he called "a total victory."

As reported by Legal Futures, the CAT's January ruling allocated the first £100M to consumers, repaid Innsworth its estimated £46M outlay, and capped the funder's profit at 50% — roughly £23M — for a guaranteed total return of about £68M. In setting a 1.5x return, the tribunal noted that the settlement of a claim originally valued at £14bn was "very far from a success" for the 44M-member class.

Lord Justice Males rejected all three grounds of review, observing that a 50% profit "was not a bad result" for a funder that would likely have lost its entire investment had the case gone to another trial. Merricks accused Innsworth of seeking "to elevate its grab for profits over and above all other considerations," and said distribution to consumers can now begin. Innsworth, which is separately pursuing arbitration against Merricks, warned that inadequate funder returns will drive "a reallocation of capital towards lower-risk claims," and accused the CAT of acting as "a de facto regulator of the litigation funding market" while offering no clear guidance on permissible returns.

Winward Litigation Finance CIO Jeremy Marshall predicted the ruling "will certainly put the brakes on funders' appetites" for CAT claims.

Commercial

North Carolina Senate Approves Litigation Finance Ban, Sending HB 315 to the House

By John Freund |

While most state legislatures have pursued disclosure and registration regimes for litigation finance, North Carolina is advancing something far more drastic: an outright ban.

As reported by Bloomberg Law, North Carolina senators have approved legislation that bans litigation finance in the state, sending the measure to the state House.

The vehicle is House Bill 315, which began life as a "Gift Card Theft & Unlawful Business Entry" bill before being rewritten in the Senate as "an act to prohibit litigation investments in the civil justice system, to prevent the civil justice system from becoming a financial investment market." The amended bill makes it unlawful "to engage in litigation investment" in North Carolina or to furnish litigation investment to a party or counsel of record in a civil proceeding — defining litigation investment broadly as any provision of money for litigation fees, costs, or expenses in exchange for repayment contingent on the outcome.

The bill carves out narrow exceptions for contingency-fee arrangements, insurer obligations, nonprofit legal aid, non-contingent loans, and funding from family members. Its legislative findings lean heavily on national security concerns, citing the risk of undisclosed foreign persons and entities investing in domestic litigation.

The measure stands in sharp contrast to recent state activity elsewhere — Kansas, Michigan, and New Jersey have all advanced transparency-focused frameworks this year that regulate rather than prohibit the industry. If enacted, North Carolina would become one of the most restrictive litigation finance jurisdictions in the country, and industry critics have already characterized the gut-and-replace maneuver as a legislative bait-and-switch.

Commercial

Class Representative Moves to Withdraw UK Instrument-Maker Claims After Funding Falls Through

By John Freund |

A proposed UK collective action against major musical instrument manufacturers is collapsing for want of litigation funding — a concrete illustration of the financing squeeze facing claims in the Competition Appeal Tribunal.

As reported by Law360, consumer rights advocate Elisabetta Sciallis applied on Wednesday to withdraw her proposed class action against Fender, Yamaha, and other musical instrument manufacturers, saying she had been unable to secure litigation funding despite years of effort.

Sciallis, a principal policy adviser at consumer group Which?, filed a series of proposed opt-out collective actions in 2022 on behalf of consumers who purchased musical instruments, following on from Competition and Markets Authority decisions fining several manufacturers for resale price maintenance. The claims had been stalled at the certification stage for years, and the tribunal had grown increasingly impatient: a March 2026 case management order listed a preliminary hearing for after June 5 specifically to determine the adequacy of the proposed class representative's funding and insurance arrangements.

The withdrawal underscores a broader theme in the UK collective actions regime. With the CAT tightening its scrutiny of certification and funder returns — and with the Innsworth-Mastercard distribution fight casting doubt on the economics of opt-out claims — funders have become increasingly selective about which collective proceedings they will back. For proposed class representatives unable to assemble a viable funding package, even claims that follow on from regulatory infringement findings may prove impossible to sustain.