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Summary –The Johnson Case
What happened?
The Supreme Court held that motor dealers arranging finance for customers do not owe a fiduciary duty of loyalty. This means undisclosed commissions paid by lenders to dealers cannot be treated as “bribes” or breaches of fiduciary duty. As a result, the claims by Hopcraft and Wrench based on those arguments failed.
However, the Court upheld Mr Johnson’s claim on different grounds – an unfair relationship under Section 140A of the Consumer Credit Act 1974 (CCA). FirstRand Bank paid the dealer a large undisclosed commission of £1,650.95, amounting to 55% of the total cost of credit and over 25% of the amount borrowed. The dealer also failed to disclose a restrictive commercial tie – a “right of first refusal” arrangement limiting the lenders available to the customer. Combined with Mr Johnson’s lack of financial sophistication, these factors created an unfair relationship. The Court awarded compensation equal to the full commission plus simple interest.
This ruling confirms that, depending on the facts, especially where hidden high commissions and commercial ties exist, motor finance agreements can still be unfair under s.140A CCA, leading to consumer compensation under s.140B CCA.
What does this mean?
Secret commission claims can no longer be argued as bribes or fiduciary breaches.
- Before this ruling, claimants often argued that undisclosed commissions amounted to bribes or breaches of fiduciary duty.
- The Supreme Court has now closed that route: dealers/brokers do not owe fiduciary duties when arranging motor finance.
The focus shifts to “unfair relationship” under the CCA.
- The only viable claim route now is to bring a claim under Section 140A-C of CCA, where the Court will assess whether the relationship was unfair based on:
- Size of the commission relative to total interest charges and the amount borrowed (e.g. in Johnson, commissions were 55%of interest charges and over 25% of the loan - clearly unfair)
- Type of commission structure – discretionary commission arrangements (DCAs) incentivised dealers to hike interest rates for higher commissions
- Disclosure – were commissions and commercial ties properly explained.
- Customer’s understanding and experience
- Any regulatory breaches
- Any other misleading or pressured sales behaviour
Refunds are possible, but not automatic.
If the court finds unfairness, remedies may include:
- Repayment of some or all of the commission
- Adjustment (reduction) of interest charged under the credit agreement
- Simple interest added to either of the above.
But outcomes now depend on evidence of unfairness, not any automatic rule about commissions being unlawful.
Where does this leave consumers?
The Supreme Court has confirmed that unfairness, not breach of duty, is the core legal test. Whilst breach of fiduciary-duty and bribery arguments are no longer available, statutory consumer protections under the CCA remain firmly in place.
A strong claim will generally involve:
- High undisclosed commission
- Poor or misleading disclosure
- Restricted or undisclosed lender options
- Customer vulnerability or lack of sophistication
An inadequately disclosed commission alone does not guarantee a claim, but large, hidden commissions combined with limited choice and poor disclosure may indicate an unfair relationship.
Key questions for any potential claim are:
- How was the commission structured and was it disclosed?
- How large was the commission compared to the amount borrowed and total interest?
- What did you understand at the time about commissions and were genuine alternative finance options offered?
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