Johnson v FirstRand Bank Limited: New Supreme Court ruling on secret commissions paid to dealers from Motor Finance Companies

Hopcraft and another (Respondents) v Close Brothers Limited (Appellant);

Johnson (Respondent) v FirstRand Bank Limited (London Branch) t/a MotoNovo Finance (Appellant);

Wrench (Respondent) v FirstRand Bank Limited (London Branch) t/a MotoNovo Finance (Appellant);

Judgment: https://supremecourt.uk/uploads/uksc_2024_0157_0158_0159_judgment_updated_1a7a7e127d.pdf

Before;

• Lord Reed – President;
• Lord Hodge – Deputy President;
• Lord Lloyd-Jones;
• Lord Briggs; and
• Lord Hamblen.

Comment

On Friday 1^st of August 2025, the UK Supreme Court, unusually after financial markets had closed, handed down judgment in the above three cases in an effort to reduce any anticipated market impact on the share prices of care finance lenders.

The three conjoined appeals concerned the legality of undisclosed commission payments paid by finance companies to car dealers in the circumstances when the car dealer introduces a customer to a lender during the process of purchasing a car on finance from the car dealer. In each of the three appeals, commission was kept secret and not disclosed by the car dealer to the customer or not completely disclosed to the customer by the car dealer.

The claimants initially were successful in their appeals to the Court of Appeal, which held that the car finance companies as the defendants owed a fiduciary duty to the claimants and that the commission payments paid by the car finance companies to the car dealers should have been fully disclosed by the car dealers to the customers and that the transactions were not transparent.

The claimants sought recission of the finance contracts and financial damages. In all three appeals it was alleged that the tort of bribery and dishonest assistance had taken place which was in breach of a fiduciary duty which the car dealers owed to the customer as the ultimate beneficiary of the contract for car finance. The appeal in the Johnson case also involved a claim that Mr Johnson’s relationship with First Rand Bank Ltd was “unfair” under the Consumer Credit Act 1974 (“the Act”).

What did the Supreme Court say?

1. Fiduciary duty between the car dealer and the customer and bribery – The Supreme Court ruled that car dealers did not have fiduciary relationship with the customer and one which gave rise to “single-minded (or undivided) loyalty”. Because such a relationship did not exist, the car finance companies as lenders cannot have committed bribery and owed no accessory liability.
   
   
2. Unfair relationships under s. 140A of the “the Act” – The Supreme Court ruled that there was an unfair relationship between one of the customers and the lender based on the particular facts in the case. In the case of Mr Johnson, the question of whether the relationship was “unfair” was very fact sensitive and are likely to include:
   
   
   1. The size of the commission relative to the charge for credit;
   2. The nature of the commission (because for example a discretionary commission may create incentives to charge a higher interest rate);
   3. The characteristic of the consumer;
   4. The extent and manner of the disclosure (including by the broker insofar as section 56 is engaged); and
   5. Compliance with applicable the regulatory rules.

Next Steps

The Financial Conduct Authority (FCA) has concluded that most customers who will be eligible for compensation as a result of the ruling will probably receive less than £950 compensation from lenders. The total cost of any industry compensation scheme is estimated to be between £9 billion and £18 billion pounds and will very much depend on the design of the compensation scheme taken forward and delivered by the car finance industry.

Consultation on a Compensation scheme for Motor Finance Customers

Any redress scheme must be fair to consumers who have lost out and must ensure the integrity of the motor finance market, so that it works well for all impacted consumers.

The FCA will publish a consultation on a compensation scheme by early October 2025 and in time for consumers to start receiving compensation in 2026.

Any compensation redress scheme must follow the defined principles of:

• Comprehensiveness;
• Fairness;
• Certainty;
• Simplicity and cost effectiveness;
• Timeliness;
• Transparency; and
• Market integrity.

The FCA will propose that any compensation scheme covers discretionary commission arrangements (DCAs) where the broker could adjust the interest rate afforded to a customer, if they were not properly disclosed.

Also, the FCA will consult on which non-discretionary commission arrangement should be included. This is because the Supreme Court decision in the Johnson case, which did not include the payment of any discretionary commission, makes clear that non-disclosure of other facts relating to the commission can make the relationship unfair.

The methodology for calculating compensation redress will be informed by any degree of harm suffered by the customer and the need to ensure consumers continue to be able to access affordable motor finance.

Interest is also normally paid on redress compensation awards. Any interest paid should be fair and proportionate.

The FCA believes that any compensation scheme should cover motor finance agreements which date back to 2007. This is consistent with the complaints that the Financial Ombudsmen can consider ensuring the scheme is comprehensive.

A decision on whether any financial compensation redress scheme should be opt-in or opt-out has still to be taken. Consultation on this issue is sought by the FCA.

Advice to Car Finance providers

Firms must comply with the law and all FCA rules. Prudential rules require regulated firms to maintain adequate financial resources. Firms should now refresh their estimates, ensuring they cover both liability for compensation and the administrative costs. The FCA will consult on extending the 4 December 2025 consumer complaints deadline. This will align with any timetable for compensation payments of any proposed financial compensation redress scheme.

Advice for Car Finance Consumers

The FCA advise any consumers who are concerned that they were not told about commission and who think they may have paid too much for the finance should complaint to their motor finance providers now.

The FCA will aim to make any compensation redress scheme easy to participate in, without needing to use a claims management company (CMCs) or law firm. This is because the cost of using such firms could result in any compensation being impacted by up to 30% in fees to the CMCs or law firms.

The FCA will engage with all stakeholders over the coming weeks on the detail of how any compensation redress scheme should work. They will aim to publish the consultation by early October 2025, and it will be open for six weeks.

The FCA will then aim to finalise the rules that any compensation redress scheme will follow so that it can be launched in 2026 so that consumers can start to receive compensation next year.

Nicholas Mellis, Pupil Barrister
nicholas.mellis@tbgbarrister.co.uk