Key Takeaways – Johnson v Firstrand Bank Ltd (t/a Motonovo Finance) [2024] EWCA Civ 1282

 Summary of the decision

In Johnson v Firstrand Bank Ltd (t/a Motonovo Finance) [2024] EWCA Civ 1282, the Court of Appeal (Andrews, Birss, and Edis LJJ) unanimously allowed all three combined appeals on motor finance commission cases against Firstrand Bank Ltd and Close Brothers Ltd. (“the Banks”).  In each of the three cases, the claimants were unsophisticated consumers who engaged car dealers (“dealers”) as their credit brokers to arrange financing to enable them to buy second-hand cars. In each case, the dealers received a commission from the Banks. In the case of Hopcroft, there was no dispute that the commission was kept secret from the claimant. In the cases of Wrench and Johnson, the lender’s standard terms and conditions made reference to the payable commission. In Johnson, the dealer also provided the claimant with a lending suitability document that made reference to a commission.

In summary, the court found the dealers owed the claimants the “disinterested duty” identified in Wood v Commercial First Business Ltd [2021] EWCA Civ 471; [2022] Ch 123. That is, a duty to provide information, advice, or recommendation on an impartial or disinterested basis. The relationship between them was also a fiduciary one, in tandem with, and as a consequence of, the disinterested duty. Therefore, in all the cases the dealers had a conflict of interest. In Hopcroft and Wrench, the claimants did not receive any (Hopcroft) or sufficient (Wrench) disclosure of the commission to negate its secrecy, and therefore, the Banks were liable as primary wrongdoers. In the third case, whilst there was sufficient disclosure to negate secrecy, there was insufficient disclosure to gain fully informed consent, and the Bank was therefore liable as an accessory to the broker’s wrongdoing. The court also found that partial or no disclosure of the commission will not necessarily suffice to make out an unfair relationship claim under section 140A of the Consumer Credit Act 1974. But on its specific facts, Mr Johnson’s claim under section 140A succeeded too.

Commentary

There are four key takeaways from the decision.

1. The Court of Appeal has brought welcome clarity to the obligations of lenders and brokers in disclosing the existence of commission agreements between them to the consumer. In cases with similar fact patterns, lenders cannot rely on generic statements in the terms and conditions of the lending agreement to discharge the disclosure obligation. Nor can they assume there has been full disclosure of the commission because they required the broker to make such a disclosure. If the lender itself does not take steps to give full disclosure, it runs the risk that the broker will not.
2. The Court struggled to reconcile conflicting authorities on the requirements for accessorial liability. Hurstanger Ltd v Wilson [2007] EWCA Civ 299; [2007] 1 WLR 2351 suggested that a claimant had to prove the lender knew of the fiduciary relationship and paid the broker the commission in circumstances in which, as a matter of fact, there was a failure to obtain the consumer’s informed consent. However, obtaining consent is usually the agent’s (broker) primary responsibility and breach of the broker’s breach of fiduciary duty arises from the lender’s payment of commission that creates the conflict of interest unless the consumer gave informed consent.
3. The court clarified that a commission is either secret or it is not, a binary concept. It is the extent of disclosure given that may negate the secrecy.
4. This is unlikely to be the final word in secret commission cases because the Court of Appeal suggested “it may be that on some future occasion it will be felt desirable for” the Supreme Court to provide a definitive statement on the general circumstances in which the payment of a commission by a third party to another person’s agent or fiduciary will give rise to a liability (whether as principal wrongdoer or an accessory) on the part of the payer. Further, Reuters reports that Firstrand has said it will appeal the Court of Appeal’s decision.