Discretion, duty, and disclosure. Inside the UK Supreme Court's landmark discretionary commission appeals

Between 1 and 3 April 2025, the UK Supreme Court heard a landmark appeal regarding three test cases

The consumer credit appeals heard were:

• Johnson v FirstRand Bank Limited (MotoNovo Finance)

• Wrench v FirstRand Bank Limited (MotoNovo Finance)

• Hopcroft v Close Brothers Limited (Close)

The dispute centred on whether motor dealers acted improperly in receiving alleged undisclosed or secret commissions, from the lenders while arranging finance deals.

In October 2024, the Court of Appeal ruled in favour of the consumers, stating that undisclosed commissions could amount to bribery and that the lenders were liable.

Key legal questions in the Supreme Court appeal

The key questions were fiduciary duties, bribery, and fairness in consumer credit.

1. Fiduciary duty: Do car dealers owe consumers a 'disinterested' duty?

When acting as credit brokers, do car dealers owe consumers a 'disinterested' and/or fiduciary duty to provide information, advice or recommendation?

A fiduciary duty is a legal obligation requiring one party (the fiduciary (the dealer in this case)) to act in the best interests of another (the principal (the consumer in this case)), putting the principal's needs ahead of their own.

This duty is based on trust, loyalty, and good faith.

The Court of Appeal found that the lenders owed a fiduciary duty to the consumers.

🗝 Key elements of fiduciary duty

1. Duty of loyalty

• The fiduciary must prioritise the principal's interests over their own

• No secret profits or undisclosed conflicts of interest are allowed

2. Duty of care

• The fiduciary must act with reasonable skill and diligence

• They should provide accurate, unbiased advice

3. Duty of good faith

• The fiduciary must act honestly and transparently

• They should disclose any material facts affecting the principal's decisions

🚘 How it applies to the UK motor finance case

In Wrench v FirstRand Bank Limited and Hopcroft v Close Brothers Limited the Supreme Court must decide:

📍Did car dealers, acting as credit brokers, owe consumers a fiduciary duty?

• Lenders argue: No - dealers were salespeople, not impartial advisers

• Consumers argue: Yes - brokers arranged finance and should have acted in their best interest

📍If a duty existed, did secret commissions breach it?

• Hidden payments could mean dealers prioritised lender profits over fair deals for buyers

2. Tort of Bribery: Can lenders be liable?

Can the lenders be liable in the tort of bribery? If so, what is the correct approach to remedies?

The tort of bribery is a civil (non-criminal) legal claim that allows a wronged party to seek compensation when someone:

• 1. Secretly pays or receives an improper benefit (e.g., a kickback or undisclosed commission)

• 2. In a relationship where trust is expected (e.g., agent-principal, employer- employee)

• 3. Without the principal's fully informed consent

Unlike criminal bribery (which involves corruption of public officials), the civil tort of bribery applies to private transactions where hidden payments distort fair dealings.

🗝 Key elements of the Tort

For bribery to be proven in civil court, the claimant must show:

1. A fiduciary or agency relationship

• 1. The person taking the bribe (e.g., a car dealer acting as a credit broker) must owe a duty to act in another's interests (e.g., the consumer)

2. A secret or improper payment

The payment (e.g., a lender's commission to the dealer) was either:

• Undisclosed (completely hidden) or

• Disclosed inadequately (buried in fine print; not properly explained)

3. Lack of informed consent

• The principal (e.g., the consumer buying the car) did not knowingly agree to the payment arrangement

4. Potential harm or unfairness

• The bribe influenced decisions to the principal's detriment (e.g., higher interest rates or overall cost of credit for the buyer)

🚘 How it applies to the UK motor finance case

In Wrench v FirstRand Bank Limited and Hopcroft v Close Brothers Limited, the Supreme Court is examining:

📍Is the tort of bribery still valid?

• Lenders argue: It's outdated and should be abolished (claiming remedies should require proof of fraud or loss)

• Consumers argue: It's essential to punish hidden commissions that distort fair deals

📍Did lenders commit bribery by paying secret commissions to dealers?

• If dealers were acting as agents (in the capacity of credit brokers) for consumers, undisclosed commissions could qualify as bribes

Additional legal questions before the court

• 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?

• Can insufficient disclosure also suffice to make the relationship between lender and consumer 'unfair' under the Consumer Credit Act 1974?

Parties' positions on key issues

The existence of a Fiduciary Duty

🏦 The lenders' Position:

In the case of FirstRand Bank Limited (FirstRand)and Close Brothers Limited (Close Brothers) collectively the Lenders, argued that a fiduciary duty and a disinterested duty both require complete loyalty and a commitment to act in the principal's best interest, putting aside one's own interests.

Car dealers, however, have their own interests in selling both the car and the finance. Therefore, they cannot change the consumer's legal position, and a fiduciary relationship does not exist.

👥 The customers' position:

Ms Hopcraft, Mr Johnson and Mr Wrench (collectively the Customers) argued that a fiduciary duty and a disinterested duty both require complete loyalty and a commitment to act in the principal's best interest, putting aside one's own interests.

If the dealer has this role, they will have made choices on behalf of the customer.

Because of this, the agent (dealer) must provide impartial and disinterested advice. Paying a commission to a dealer breaches this duty.

The common law Tort of Bribery

🏦 The Lenders' position:

The Lenders argued that the law took a wrong turn, and the common law tort of bribery goes against principles based on the equitable rules of no conflict and no profit. The right to rescind a contract comes from breaching a fiduciary duty. Therefore, liability for bribery only arises if the person receiving the bribe owed a fiduciary duty to the claimant.

Further, there should be no automatic right at common law to recover a bribe without proving loss, gain, or dishonesty. Recovery should be pursued through other means, like dishonest assistance. Rescission should be discretionary and only allowed when consent to enter a contract is impaired.

👥 The Customers' position:

The Customers argued that the common law tort of bribery is well-founded and justified. It should not be tampered with in the slightest without compelling justification.

Paying a commission to a dealer is considered a bribe because it creates a potential conflict of interest between the agent (dealer) and the principal (customer).

This tort applies unless the principal has full knowledge and gives informed consent,which is not the case here.

Dishonest assistance

🏦 The Lenders' position:

The Lenders stated that they can be held liable for dishonest assistance only if the court determines that the dealer owed and breached a fiduciary duty, and the lender knew about this duty. This test includes both a subjective and objective limb.

👥 The Customers' position:

The Customers contended that the Lenders were dishonest for the purpose of the dishonest assistance test.

The Lenders knew the dealer was acting on behalf of the customer, which is enough to prove dishonesty.

Contrary to the Lenders' position, the test for dishonesty is purely objective and does not include a subjective element.

The Consumer Credit Act 1974

🏦 The Lenders' position:

The Lenders argued that the Court of Appeal incorrectly found that the relationship between Mr. Johnson and FirstRand was unfair under s.148 of the Consumer Credit Act 1974

The Lenders claimed that the Court of Appeal also wrongly identified the commission as the reason for the car's inflated price.

The similarity between the commission and the price discrepancy was purely coincidental and the issue regarding the Consumer Credit Act 1974 ought to be remitted.

👥 The Customers' position:

The Customers stated that the Court should determine if there is an unfair relationship under s.148 of the Consumer Credit Act 1974. The size of the commission matters.

The key question is whether a reasonable person would want to know the commission amount in order to make an informed decision.

Interveners' positions

📘 The FCA's position

The FCA made clear that:

• It is responsive to the issues in this case and is currently undertaking a review of the motor finance market

• It will likely consult on a consumer redress scheme if the judgment indicates widespread failings

• It emphasised the importance of a swift decision by the UK Supreme Court

• The Court should have regard to the existing regulatory framework

• It disagrees that all dealers are fiduciaries, but supports having a separate disinterested duty to prevent gaps in the law

• It does not support abolishing the common law tort of bribery, arguing that doing so would create gaps in consumer protection laws

📙 The National Franchised Dealers Association's position

The NFDA submitted that:

• Commercial considerations are integral to selling a car on finance

• Since most cars are bought using finance, selling the car and the finance are part of the same transaction

• Dealers do not undertake to act with single-minded loyalty, so they cannot be considered fiduciaries

• It adopted the submissions made by Close Brothers Limited in relation to remedy, i.e., that there should be no automatic entitlement to recission

• It agrees with the FCA that it will be a sweeping change if credit broking creates a fiduciary duty and pointed out the importance of predictability in the industry

Timeline and potential Redress Scheme

⏳ The Supreme Court's decision is expected sometime in July 2025.

According to the FCA's March 2025 update on discretionary commissions in motor finance, they indicated that they are favouring a redress compensation scheme but will make a final decision within 6 weeks of the Supreme Court's judgment.

In their statement, the FCA noted:

'Following the conclusion of the Supreme Court hearing, we are continuing our work to assess the potential scale and scope of consumer harm resulting from discretionary commission arrangements in motor finance. Should the Court's decision indicate widespread failings, we are prepared to consult promptly on an appropriate redress scheme to ensure affected consumers receive fair compensation.'

Update: August 2025 Supreme Court Ruling and FCA's Update

Since this blog was first published, the UK Supreme Court has handed down it's judgment and the FCA has released an update on the propose redress scheme. The developments can be read about in our latest blog and on the links shown below:

The UK Supreme Court's case summaries and judgments

FCA's proposal for a potential redress compensation scheme for motor finance complaints