The Supreme Court has allowed an appeal against a Court of Appeal ruling that commissions paid by dealers to lenders in respect of car finance should be refunded to customers, in a decision which is likely to reduce the scope for similar claims going forward.
The case involved three customers who had bought cars under hire purchase agreements. The dealers received commissions from the lenders but did not specifically disclose this to the customers, although in two cases the lender’s standard terms and conditions referred to the fact that a commission might be payable.
The customers subsequently sought return of the commissions from the lenders. Their claims were largely unsuccessful in the lower courts, either initially or on appeal. Given the importance of the issue, their appeals against those decisions were transferred up to the Court of Appeal and listed together.
Upholding the customers’ claims, the Court found that, in providing a credit brokerage service to the customers, the dealers incurred both a disinterested duty and a fiduciary duty to them. In two cases there was insufficient disclosure of the commissions to avoid them being secret for the purposes of the tort of bribery. In the third case the disclosure was sufficient to avoid the commission being a bribe but insufficient to obtain the customer’s informed consent. The commission was therefore an unauthorised profit made by the dealer in breach of its fiduciary duty. The third customer’s relationship with the lender was also unfair under Section 140A of the Consumer Credit Act 1974. The lenders appealed to the Supreme Court.
The Court considered that the features of the transactions did not give rise to a fiduciary duty sufficient to create liability for bribery. No reasonable onlooker would think that, by offering to find a suitable finance package, the dealer was giving up, rather than continuing to pursue, its own commercial objective of securing a profitable sale. Nor was the role of the dealer in selecting and negotiating a suitable finance package for the customer one where a fiduciary obligation of loyalty could be implied. Any element of trust and confidence that the dealer would secure the best available finance package was not of the type where the customer would trust the dealer to act with single-minded loyalty, to the exclusion of its own interests. The lenders’ appeal on that ground was allowed.
Having identified errors in the Court of Appeal’s decision that the third customer’s relationship with the lender was unfair under Section 140A, the Supreme Court held that it should decide the issue for itself rather than remit it to a District Judge. In the Court’s view, the fact that the undisclosed commission was so high was a powerful indication that the relationship was unfair. Documents provided to the customer did not disclose that the lender had a right of first refusal, but instead created the false impression that the dealer was offering products from a panel of lenders and recommending the product that best met the customer’s requirements. The Court found that the relationship was unfair and the third customer was therefore entitled to a refund.