Supreme Court delivers its verdict on motor finance commissions

Background

Each case involved:

• The claimant purchasing a vehicle from a motor dealer
• The dealer obtaining an offer of finance from a lender on hire purchase terms
• The finance offer being presented to the claimant by the dealer, acting for that purpose on behalf of the lender
• The dealer making a profit on the car sale and receiving commission from the lender; and
• No disclosure or partial disclosure of the commission to the claimant

There was a direct contract between the claimant and the lender which was a regulated credit agreement, but all negotiations were between the claimant and the dealer. The claimants each brought proceedings against the lenders, claiming that the commissions amounted to bribes, or to secret profits, received by the dealers as fiduciaries. Each claimant also brought actions under s.140A CCA on the basis of an unfair relationship. Only Mr. Johnson's s.140A CCA claim made it to the Supreme Court for determination.

In October 2024, the Court of Appeal held that motor dealers, when brokering credit, do owe their customers a fiduciary duty - and a duty to provide information, advice or recommendations impartially and disinterestedly. This was a significant and unexpected judgment, which imposed duties on brokers far beyond what was presumed under existing FCA rules. The lenders were given permission to appeal and the Supreme Court heard arguments in early April 2025. Both the FCA and the National Franchised Dealers Association were permitted to intervene. The presence of interveners and the nature of the questions posed by the justices during the hearing demonstrated that the Supreme Court was sensitive to wider implications beyond motor finance. Details of the Court of Appeal's decision and the Supreme Court hearing are set out in our earlier briefings on the case which can be found here and here.

The central question for the Supreme Court to consider was: “Does a car dealer who receives a commission from a lender for arranging finance in a tripartite transaction between customer, dealer, and lender in which a car is bought on finance owe a duty to the buyer of the car such as to enable that buyer (absent the requisite level of disclosure) to bring a claim against the lender for bribery or dishonest assistance, or under the Consumer Credit Act 1974?”

The Supreme Court delivered its judgment on Friday 1 August 2025 after the markets had closed, reflecting the price-sensitive nature of the decision. We set out below the key findings.

Fiduciary duties and liabilities

Fiduciary duties were the central area where the Supreme Court pushed back on the position of the Court of Appeal, finding that motor dealers do not owe fiduciary duties.

An important element of the Supreme Court's decision was that fiduciary duties arise where a person "consciously assumes or undertakes responsibility in relation to the management of property or affairs of another in circumstances where he or she knows or ought to appreciate that this carries with it the expectation that he or she will act with loyalty to that other in that regard". The fiduciary should at least be aware that they have taken on particular responsibilities to put loyalty to another above their own interests.

Generally speaking, it will be inappropriate for an intermediary acting for purely commercial purposes to find themselves acting as a fiduciary when they had not intended to take on those responsibilities. Crucially, the Supreme Court stated that:

“No reasonable onlooker would think that, by offering to find a suitable finance package to enable the customer to obtain the car, the dealer was thereby giving up, rather than continuing to pursue, its own commercial objective of securing a profitable sale of the car.”

The Supreme Court found that the relationship of trust and confidence is the consequence, not the cause of a fiduciary duty. I.e. one has to first find that there is a fiduciary duty and only then do the consequences of that in terms of trust and confidence and the obligations, such as not to make a secret profit, flow.

The Court of Appeal placed a lot of emphasis on the fact that the claimants were commercially unsophisticated customers, however the Supreme Court found that the status of the customer is not a relevant consideration in deciding whether or not a fiduciary duty is owed.

The Supreme Court also held that merely giving advice or guidance is not enough to make one a fiduciary. This is important in the regulated space when looking at the role of intermediaries.

Having established that motor dealers do not owe a fiduciary duty, it followed for the Supreme Court that civil liability of the lenders for bribery did not arise. Absent a fiduciary duty, the no secrets and no profits rules also do not arise (unless they are imposed under regulation or law of contract, in particular with respect to agents).

S.140A Consumer Credit Act 1974

As mentioned, the one claim to succeed in the Supreme Court was Mr. Johnson’s claim under s.140A CCA. S.140A provides that the court may make an order in connection with a credit agreement if it determines that the relationship between the creditor and the debtor arising out of the agreement (or the agreement taken with any related agreement) is unfair to the debtor because of: any of the terms of the agreement or of any related agreement; the way in which the creditor has exercised or enforced any of his rights under the agreement or any related agreement; and any other thing done (or not done) by, or on behalf of, the creditor (either before or after the making of the agreement or any related agreement).

In deciding whether to make a determination the court shall have regard to all matters it thinks relevant. This is a very broad provision and looks at the relationship between the creditor and debtor as a whole, rather than just the terms of the credit agreement itself.

The Supreme Court, in allowing Mr. Johnson's claim, provided guidance on the factors that trigger an unfair relationship under s.140A in the context of motor finance. The key message was that “the test of unfairness of the relationship of debtor and creditor is stated in general terms which permit courts to take account of a very broad range of factors”. Referencing the case of Plevin, the Supreme Court stated that the application of the test in each case will, inevitably, be a highly fact-sensitive exercise. The Supreme Court agreed with the FCA’s written intervention that a relationship will not be unfair merely because commission was paid of which a borrower was unaware. Relevant factors to consider include:

• 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 the disclosure, and
• Compliance with the regulatory rules

On the facts of Mr. Johnson’s case, the Supreme Court found that the relationship was unfair by reason in particular of the size of the commission (26% of the amount of credit advanced and 55% of the total charge for credit), failure to disclose the commission and concealment of the commercial tie between the dealer and lender. As stated, the Supreme Court did not create any new law in this area and the award to Mr. Johnson is entirely consistent with the existing law on unfair relationships under the CCA.

That being said, lenders should remain aware of s.140A CCA claims and the factors that the court may take into account, as they leave opportunity going forward for successful claims (to the extent credit is involved). Once an unfair relationship argument is raised, the burden of proof is on the creditor to demonstrate that the relationship is not unfair, so this is procedurally an easier claim for debtors to bring. Consequently, we may see commission disclosure claims being reframed as breaches of the CCA.

FCA redress and rules

Following the judgment, the FCA has announced that it will consult on setting up a compensation scheme for motor finance customers. It is likely that this will be based on s.140A CCA. It is proposed that the scheme will cover historic discretionary commission arrangements if these were not properly disclosed. The FCA is also going to consult on which non-discretionary commission arrangements might be included.

The inherent challenge the FCA will have is formulating a sufficiently prescriptive scheme when this is based upon such a fact-sensitive and subjective provision. In this respect, the Supreme Court's judgment on s.140A was unhelpful to the FCA. The FCA's consultation will launch by early October 2025. If the scheme goes ahead, the first payments should be made in 2026 and it is currently proposed that they should cover agreements dating back to 2007 (when s.140A came into effect).

In overturning the Court of Appeal's decision, the Supreme Court reaffirmed that the FCA rules do still hold weight. While the Supreme Court was clear that statute and the FCA rules do not necessarily override common law rights, they provide "an important part of the context". This was a stark contrast to the Court of Appeal, which barely acknowledged the existence of FCA rules on the disclosure of commission. As such, it is reasonable for firms to continue to rely upon FCA rules (although firms should bear in mind that these are not and never have been the final word). The FCA may decide to look at guidance for commission disclosures more generally, however there has been no indication at this stage from the FCA that there will be rule changes or redress schemes beyond motor finance.

Implications of the decision beyond motor finance for intermediaries

Following the Supreme Court's judgment, the default position for all intermediaries will be that they are acting for their own commercial benefit and are entitled to do so, subject to:

• The FCA rules where applicable
• The terms of business between the intermediary and their customer, and / or
• Where the intermediary takes on a particular role which either expressly or by clear implication means they assume a fiduciary duty

Note that in the context of insurance intermediaries, traditionally an insurance broker has been regarded as the agent of the insured. By contrast, other insurance intermediaries will often act as agents of the insurer, although it is possible for them to act as agents of both insured and insurer for different purposes. In addition, a traditional insurance broker will not be in a "three-cornered" relationship in the way that the motor dealers were, or in the way that an insurance intermediary which is also offering goods or other services alongside the insurance will typically be.  Does the Supreme Court's judgment mean that an insurance broker acting as agent of the insured and agreeing to act in the insured's best interests to find suitable insurance for them, should be regarded as a fiduciary?

The Supreme Court made it clear in its judgment that the no secrets rule and the no conflicts rule do apply by virtue of the fact that an insurance broker is acting as an agent of the insured. However, this is well-trodden ground in terms of the rights of insurance intermediaries to receive and retain commissions, at least where they are not being remunerated by way of a fee. The Supreme Court's decision points to a distinction between the obligations of an agent and the obligations of a fiduciary; i.e. that one does not need to find that an agent is a fiduciary in order to find that they have duties not to profit at the expense of their principal. We therefore do not consider it likely that a typical insurance intermediary will be found to be acting as a fiduciary, and therefore to have received and retained commission unlawfully, as a result of the Supreme Court's judgment.

The fact that a person is acting as agent of another may be an indicator that they have taken on the role of a fiduciary - and conversely, where it is clear they are not acting as agent, this may be an indicator that they are not a fiduciary - but it is clear from the Supreme Court's judgment that not all agents are fiduciaries. The key paragraph of the judgment on this point is paragraph 86, which states:

The relationship between principal and agent is another well-known example of a relationship which may give rise to fiduciary obligations where the agent has undertaken to act on behalf of a principal in circumstances which bring into being a relationship of trust and confidence…But, as explained in paras 101-104 below, the scope of any fiduciary obligations will be ascertained by having regard to the nature of the parties’ contract or the fiduciary’s undertaking and the context of the particular relationship of agency.

Having regard to the context in which insurance brokers operate, and the fact that they are typically remunerated by way of commission rather than a fee paid by the insured, we do not think that this judgment should raise concerns among insurance brokers or other insurance intermediaries. However, it may be prudent to review how they describe their role in their terms of business agreements and how prominently they disclose the basis on which they are remunerated, in accordance with the requirements of ICOBS.

Similarly, in the context of financial advisers, unless they expressly take on a fiduciary role, or take on a responsibility where such a duty can reasonably be implied, they are unlikely to be subject to a fiduciary duty merely by acting as a financial adviser, even where they are paid by commission. As noted, a client's vulnerability or commercial / financial sophistication will not change this.

Like insurance brokers, if a financial adviser is acting as an agent of the client, the no secrets and no conflicts rules will apply by virtue of their acting as agent. That being said, financial advisers are perhaps more likely than insurance brokers to find themselves in circumstances where they could take on the role of a fiduciary (whether or not they are also an agent). As such, the financial adviser's role, including whether they act as agent, should be clearly and prominently stated in their terms of business.

Conclusion

Overall, the Supreme Court's decision means increased certainty for parties who receive commission in understanding the duties which they owe to customers, particularly where they act in a "three-cornered" relationship in the way that the motor dealers did. The outcome may lessen the appetite for further claims on the issue of commission (note the exception of unfair relationship claims, as discussed above), certainly in the motor finance industry. The nature of other relationships may yet be tested, but for now lenders and intermediaries alike can breathe a sigh of relief.

We recently hosted an in-depth webinar discussing the topic further, you can access the recording here.