Supreme Court: Unanimous decision
The Supreme Court this afternoon overturned the Court of Appeal’s ruling in the motor finance litigation – with one exception.
It held that Marcus Johnson was entitled to succeed in his claim that there was an “unfair relationship” between him and the lender under section 140A of the Consumer Credit Act 1974 (CCA), albeit for different reasons from the Court of Appeal.
Leaving open a route to bring claims, the court set out the key factors in decding this.
The three conjoined cases of Mr Johnson, Andrew Wrench, and Amy and Carl Hopcraft argued too that the commissions paid by lenders to car dealers also amounted to bribes, or to secret profits received by the dealers as fiduciaries.
But the Supreme Court held [1] that the lenders were not subject to any fiduciary duty towards their customers, and so claims in equity and in tort “cannot succeed”.
In a unanimous, 110-page ruling, the court said the three parties – buyer, dealer and lender – each had their own commercial interests and nobody “could reasonably think that each of the participants to such a negotiation was doing anything other than considering their own interests”. The dealer in each of the cases did not gave any assurance otherwise.
Handing down the ruling, Lord Reed, president of the Supreme Court, said the Court of Appeal had failed to understand this.
“The Court of Appeal also attached significant weight to findings that the customers trusted the dealers and were in a somewhat vulnerable position. That was the wrong approach.
“A fiduciary duty of loyalty is not generated by feelings of trust, or by vulnerability. It is not a form of consumer protection. It is generated by an undertaking to act entirely in another person’s interests without regard to one’s own. That was obviously not the position of the dealers, interested as they were throughout in achieving sales.”
On the unfair relationship under the CCA, the Supreme Court held that the Court of Appeal made multiple errors in finding it existed but decided to reconsider the issue itself rather than remit it to a district judge.
Lord Reed said the statutory test of unfairness under the CCA allowed courts to take account of a very broad range of factors and was “highly fact-sensitive”.
Several factors would normally be relevant, he went on: the size of the commission relative to the charge for credit; the nature of the commission (“because, for example, a discretionary commission may create incentives to charge a higher interest rate”); the characteristics of the consumer; the extent and manner of disclosure of the commission; and compliance with the regulatory rules.
The absence of or partial disclosure of the commission was another factor but not determinative.
Three factors were relevant in Mr Johnson’s case. “First, the size of the commission paid by the finance company to the dealer: it amounted to 55% of the charge for credit,” said Lord Reed.
“The fact that the undisclosed commission was so high is a powerful indication that the relationship between Mr Johnson and the finance company was unfair.
“Secondly, it is highly material that the documents provided to Mr Johnson did not disclose the existence of a commercial tie between the finance company and the dealer, under which the finance company was given a right of first refusal of customers referred by the dealer.
“Instead, the documents created, and were intended to create, the completely false impression that the dealer was offering products from a selected panel of lenders and recommending the finance product that best met Mr Johnson’s individual requirements.
“Thirdly, on the other side of the scales is Mr Johnson’s failure to read any of the documents provided by the dealer.
“However, Mr Johnson was commercially unsophisticated, and the court questions the extent to which a finance company could reasonably expect a customer to have read and understood the detail of such documents, particularly when no prominence was given to the relevant statements.”
The Supreme Court concluded that the relationship was unfair, and that the finance company should pay the amount of the commission to Mr Johnson with interest at a commercial rate from the date of the agreement.
Reaction to the ruling is flooding in. We will summarise it on Monday.
Solicitors for the claimants, and one of their counsel will be speaking on the future of motor finance claims at our Claims Futures Conference [2] on 22 October in Manchester. Early bird tickets are still available.