The Supreme Court today upheld appeals over finance options arranged by car dealers, finding that the dealers did not owe the customers a fiduciary duty. The ruling is a severe blow to the development of mass compensation claims for mis-selling. 

Giving an oral summary judgment, Lord Reed first explained the unusual timing of the judgment hand-down at 4.35pm, the day after the last day of term. The court president confirmed that the time was determined by advice from the Financial Conduct Authority. He said: ‘The court has been advised by the…FCA that the outcome of this appeal, whatever it may be, may affect the price of securities issued by companies involved in the car finance market, and the market will need time to digest the judgment and consider its implications. If the court were to issue the judgment during trading hours, there would be a risk of market disorder.’

He said the Supreme Court had ‘obtained the views of all the parties’ and none had objected to the change in hand-down time. ‘So that is what the court is doing, in order to avoid causing unnecessary disruption,’ the judge said.

The Supreme Court was dealing with three linked appeals over cars bought on credit where only one offer of finance was presented to, and accepted by, the buyer. In each case, the dealer received a commission from the lender.

In Hopcraft and another v Close Brothers Limited, the commission was kept secret, while in Johnson v FirstRand Bank Limited (London Branch) t/a MotoNovo Finance and Wrench v FirstRand Bank Limited (London Branch) t/a MotoNovo Finance, the claimants were unaware a commission would be paid but the lender’s standard terms and conditions referred to a commission of an unspecified amount being paid.

The Court of Appeal found in favour of all three claimants. The lenders appealed to the Supreme Court.

In his summary, Lord Reed referred to the burgeoning interest in compensation claims. ‘In the period since the Court of Appeal’s decision, claims management firms have encouraged anyone who bought a car on hire purchase or with a PCP to sign up with them, and no doubt a great many people have done so, under the impression that they had a valid claim,' he said. 'But it was too early to form any view as to whether a valid claim lay on the basis of the Court of Appeal’s decision, as the decision was under appeal, and it was only once this court decided the appeal that it would become clear whether the Court of Appeal had decided the cases correctly or not.’

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In the 110-page judgment, Lord Reed, Lord Hodge, Lord Lloyd-Jones, Lord Briggs and Lord Hamblen said the appeals in Hopcraft and Wrench had been upheld and the customers’ claims against the lender in equity and bribery could not succeed.

The judgment said: ‘The dealers in the present cases were not subject to any fiduciary duty towards their customers. We conclude that, to the extent that the Court of Appeal’s judgment and the respondents’ case depends upon the recognition of a fiduciary obligation of undivided loyalty on the part of the dealer when selecting and negotiating a finance package for the customer, they are wrong. In particular, the weight which the Court of Appeal placed upon findings of subjective trust and confidence, and of vulnerability, as indicative of a fiduciary relationship…was wrong in law.

‘It is in our judgment inherent in the arm’s length status of the dealer at all times during the negotiation of the typical transaction that it retains its own interest as seller, ie that it continues throughout to pursue its own commercial interests, free of any undertaking, express or implied, to act selflessly in the finding and negotiation of a finance package.’

In the Johnson case, the appeal, so far as it was based on tort or equity, was allowed - but the Supreme Court held that Johnson was entitled to succeed in his claim because of an unfair relationship between Johnson and the finance company.

The unfair relationship was based on three factors: the size of the commission paid by the finance company to the dealer – which was 55% of the charge for credit – and the documents provided to Johnson did not disclose the commercial tie between the financial company and the dealer, Johnson’s failure to read any of the documents provided by the dealer was also a relevant factor.

The judgment said the commission of £1,650.95 should be paid to Johnson with interest at an ‘appropriate commercial rate from 29 July 2017, the date of the agreement’.

The Supreme Court said: ‘The relationship between Mr Johnson and FirstRand was unfair within the meaning of section 140A of the [Consumer Credit Act 1974], by reason in particular of the size of the commission, the failure to disclose the commission, and the concealment of the commercial tie between the dealer and FirstRand.

‘Mr Johnson is therefore entitled to succeed in his claim on that basis. However, the order made in his favour by the Court of Appeal was vitiated by mistakes. FirstRand’s appeal must therefore be allowed so as to substitute an order in Mr Johnson’s favour on different terms from that made by the Court of Appeal.’

 

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