Claims for failure to disclose commission
This decision is about the relationship between customers, car dealers and lenders who provided customers with finance to buy their cars and paid the dealers a commission which was not (or not fully) disclosed to the customers. The claims were brought by the customers against the lenders, not the dealers.
The customers claimed that the failure properly to disclose the commission meant that the lenders had committed the tort of bribery and had also dishonestly assisted in a breach of fiduciary duty owed by the dealers to the customer.
The nature of a fiduciary duty
The key principle, said the Supreme Court, was “that a fiduciary acts for and only for another. He owes a duty of single-minded loyalty to his principal, meaning that he cannot exercise any power in relation to matters covered by his fiduciary duty so as to benefit himself.”
Crucially, the Supreme Court said that fiduciary duties arise where a person consciously assumes (or undertakes) responsibility in circumstances where they know or ought to appreciate that this carries with it the expectation that they will act with “loyalty”. Just having a relationship of “trust and confidence” is not enough (indeed it is “the consequence, and not the cause, of a fiduciary duty”). Nor is the vulnerability of one of the parties.
The key principle is therefore that a fiduciary assumes a responsibility to act for and only for another: the so-called single-minded duty of loyalty. “Accordingly, if a person is a fiduciary then he must not put himself into a position where his interest and that of the beneficiary might conflict (the no conflict rule), subject to the principal’s informed consent. In addition, or perhaps in consequence, he must not receive a personal benefit from his fiduciary position (the no profit rule), subject again to the principal’s informed consent.”
The classic example of a fiduciary relationship is that between a trustee and a beneficiary. The Supreme Court also listed other well-established examples: directors and their companies, solicitors and their clients, and certain agents and their principals. It was agreed that it is possible for other relationships, on their particular facts, to amount to a fiduciary relationship.
As the Supreme Court put it, “In a commercial setting the task is to find in a particular context the boundary between normal (self-interested) arm’s length activity and the circumstances in which equity recognises fiduciary duties of one of the commercial parties requiring that party to put aside his or her own interests and act altruistically in the interests of another.” The Court noted that, “We are not concerned here with one person’s subjective trust and confidence in another in the other’s performance of a contractual obligation; one may trust a plumber to do a job properly without the plumber becoming a fiduciary.” Similarly, a wine waiter in a restaurant who recommends a particular wine as “a perfect accompaniment” to the food chosen, is clearly not in a fiduciary relationship with the customer.
The Supreme Court said that at the heart of how equity deals with problematic payments to fiduciaries is the no profit rule. This says that a fiduciary may not make a profit for itself without the fully informed consent of its principal. Any unauthorised profit is automatically held on trust for the principal.
No bribery by lenders or dealers
Bribery involves payment of a secret commission
The tort of bribery can be committed by the payment of a secret commission. In assessing whether bribery has been committed, it does not matter what intention the payer of the bribe had in making the payment nor what effect the payment produces on the mind of the party being paid.
The Supreme Court noted that if the tort of bribery had been committed in this case, the customer would have alternative remedies against both the lender and the dealer for: (1) recovery of the amount of the bribe; or (2) damages in tort for the loss sustained.
Bribery arises only from a breach of fiduciary duty
The Supreme Court held that paying a secret commission only engages the tort of bribery in cases where the recipient of the commission is a fiduciary and the payment breaches the no conflict rule.
In doing so, the Supreme Court disagreed with the Court of Appeal, which had held that the tort could be engaged in cases where there was no fiduciary duty, and that a duty to provide information, advice or recommendations on a disinterested basis would suffice. The Supreme Court noted that “a purely contractual duty to give disinterested advice is different in its legal nature and consequences from a fiduciary duty of loyalty. Although it may be difficult to conceive of circumstances in which such a contractual duty might arise without there being a concurrent fiduciary duty, the focus of the civil law of bribery is on the latter and not the former...”.
The Supreme Court accepted that the civil law of bribery is not confined to the established categories of fiduciary relationships. However, in the Court’s view, it was a mistake to hold that a fiduciary relationship was unnecessary. Civil liability for bribery cannot therefore arise unless a fiduciary duty is owed. Such a duty may arise where one person has performed a role in another person’s decision-making process by exercising judgment or discretion in relation to the interests or affairs of that other person. Whether it does so will depend on several factors, including whether the person undertook or agreed to act in that person’s interests to the exclusion of any interest of their own.
A payment of commission is secret if there was no fully informed consent
The Supreme Court noted that, in the case law, a bribe is often referred to as being synonymous with a secret commission. The payment of bribes and secret commissions to a fiduciary is both a breach of the no conflict rule and of the no profit rule. Secrecy is important because it is possible for the consequences of receiving the commission to be avoided if the benefit is disclosed.
The Court of Appeal had held that there was a lesser requirement of disclosure for the purposes of the common law of bribery than there was in equity. It found that disclosure of the possibility of commission was sufficient to exclude common law liability for bribery, while the threshold to negate equitable remedies was fully informed consent. The Supreme Court disagreed. It held that the common law liability for bribery has equitable origins and the purpose of requiring disclosure is the same at common law and in equity: to negative what would otherwise be a breach of fiduciary duty. It would therefore be inconsistent for the need for disclosure to be governed by different rules in each case.
To avoid a breach, what is required is full disclosure of all material facts. Partial disclosure has never been enough. That is not to say that disclosure of every fact is needed: what amounts to material facts will depend on the circumstances of the case.
No fiduciary duty owed by dealers, so no liability for bribery
The Supreme Court found that the customers, dealers and lenders were each engaged, at arm’s length, in the pursuit of a separate commercial objective of their own. In the Supreme Court’s view, nobody could reasonably think otherwise.
At no time in the negotiations did any of the dealers give an express undertaking or assurance that they were putting aside their own commercial interests. In some cases, a statement was made that the dealer would seek the most suitable package, but this did not involve an undertaking to exclude consideration of the dealer’s own commercial interests. On the contrary, in three of the four transactions there was a disclosure that commission might be paid.
Nor were the dealers acting as agents for the customers in negotiating the finance. Indeed, there were certain important respects in which the dealers acted as agent for the lenders. And, although there may have been an element of dependency or vulnerability on the part of the customers, that was not indicative of a fiduciary relationship in the absence of an undertaking of loyalty. Nor was the fact that some trust and confidence may have been engendered, because it typically did not go beyond that which may frequently arise between commercial parties. The typical features of the transactions were incompatible with the recognition of any obligation of undivided or selfless loyalty by the dealer to the customer.
The continuing status of the dealer as an arm’s length party to a commercial negotiation pursuing its own separate interests was “irreconcilably hostile” to the recognition of a fiduciary obligation to another party in that negotiation, and statements that commission might be paid pointed away from a fiduciary duty being undertaken.
The role of the dealer was also not one in respect of which a fiduciary obligation of loyalty could be implied. It was not implied by law and was not to be implied in fact because that was incompatible with the arm’s length position of the dealer.
Since the Supreme Court took the view that the tort of bribery is not engaged by anything other than the receipt of a benefit by a person who was subject to a fiduciary duty, the absence of a duty in these cases meant that no liability for bribery could arise.
No liability for dishonest assistance in breach of fiduciary duty
As the Supreme Court explained, anyone involved in assisting a fiduciary in a breach of the no profit rule will be liable only as an accessory and only where that assistance was both material and dishonest. The Supreme Court held that, since the dealers did not owe a fiduciary duty to the customers, the lenders could not be liable for dishonestly assisting in a breach of fiduciary duty. Accordingly, it did not have consider what level of knowledge an accessory would need to have to be liable for dishonest assistance.
Unfair relationship under Consumer Credit Act
One of the claimants, Mr Johnson, had a separate claim that the relationship with his lender was unfair under s140A of the Consumer Credit Act 1974, which the Supreme Court upheld. The application of this provision, it was stressed, is highly fact specific and permits courts to take account of a very broad range of factors. Some of the factors that were relevant to Mr Johnson’s situation included:
- That there had been no, or only partial, disclosure of the commission, though this would not necessarily have been sufficient of itself.
- The size of the commission (55% of the total charge for the credit), which was seen as a “powerful indication” that the relationship was unfair. The Court noted the interconnection between these first two factors: “If he had been told the fact and the amount of the commission, Mr Johnson would have been able to ask why it was so high.”
- The failure to disclose the commercial tie between the lender and the dealer or the lender’s right of first refusal, which was seen as “highly material” to the issue of unfairness. Instead, the documentation conveyed the misleading impression that the dealer was offering products from a select panel of lenders.
- That Mr Johnson had failed to read the documents provided to him, although the Court, that characterised Mr Johnson as “commercially unsophisticated”, noted that it was questionable the extent to which a lender could reasonably expect a customer to have read and understood the detail of such documents. It was noted that specific attention was drawn to a separate clause regarding the lender’s liability, but no such prominence was afforded to the question of commission. Refence was made to the common law test on the incorporation of terms and the need for the provision to be displayed prominently with attention drawn to it (see Lord Denning’s famous remark in Thornton v Shoe Lane Parking: “In order to give sufficient notice, it would need to be printed in red ink with a red hand pointing to it - or something equally startling”).
Throughout its assessment the court noted the potential relevance of any breaches of rules in the FCA’s Consumer Credit Sourcebook (known as “CONC”).
Comment
The Supreme Court’s ruling is not the final chapter in the ongoing saga surrounding motor finance.
On 3 August 2025, the FCA confirmed that it will publish a consultation by early October on an industry-wide scheme to compensate motor finance customers who were treated unfairly. The FCA had already been conducting a market review into discretionary commission arrangements – which linked the broker’s commission to the interest rate and gave the broker discretion to adjust that rate – and has confirmed that it will propose that the scheme covers such arrangements if they were not properly disclosed. As a result of the Supreme Court decision in relation to Mr Johnson’s Consumer Credit Act claim (which did not involve a discretionary commission), it will also consult on which non-discretionary commission arrangements should be included. The FCA plans to consult on an interest rate for each year of the scheme and says it thinks the scheme should cover agreements dating back to 2007. It has not yet decided whether to propose an opt-in or opt-out scheme.
The FCA will consult on how the range of factors identified by the Supreme Court should be assessed to determine whether the relationship was unfair. In particular, the FCA notes that it will need to consider what size of commission in the context of the overall finance arrangements may point towards unfairness if not disclosed. The FCA notes the Supreme Court’s determination that a commission of 55% of the total cost of credit was a “powerful indication” of an unfair relationship, although the FCA may ultimately decide that the threshold for indicating unfairness is lower than that.
The FCA notes that it will also need to consider the methodology for calculating redress. The Supreme Court determined that Mr Johnson should recover the entirety of the commission amount, but the FCA notes that this approach will be just one of the options considered, and that other approaches could lead to lower payments. This may be a reference to the approach adopted by the FCA to compensation in relation to payment protection insurance commission following a previous Supreme Court judgment in Plevin v. Paragon Personal Finance Ltd. There the FCA adopted a ‘tipping point’ of commission which was more than 50% of the premium paid, above which firms should presume that the failure to disclose commission would give rise to an unfair relationship. However, rather than all consumers above that tipping point being able to recover the full amount of commission, compensation was instead limited to the excess commission over the 50% tipping point.
While noting that it is hard at this stage to estimate precisely the total cost to industry of the scheme, the FCA says that it is unlikely that the costs, including administrative costs, would be materially lower than GBP9 billion and it could be materially higher.
The FCA currently estimates that most individuals will probably receive less than GBP950 in compensation. It expects firms to refresh their estimates of potential liabilities, ensuring they cover both liability for compensation and the administrative costs.
The FCA aims to publish the consultation by early October and for it to be open for 6 weeks.
