Secret commissions: Supreme Court clarifies the law and FCA to consult on motor finance redress scheme
Introduction
In a 110-page judgment published on Friday evening, the Supreme Court significantly clarified the law around secret commissions.
The Supreme Court clarified that (1) the tort of bribery will only be engaged when the recipient is under a fiduciary duty of loyalty; and (2) once the fiduciary duty of loyalty applies, the principal must receive disclosure of “all material facts” to be able to provide informed consent to a payment.
In the motor finance context, the Supreme Court found that car dealers did not owe a fiduciary duty of loyalty to their customers when providing a credit brokering service for car finance. A fiduciary duty of loyalty was an essential requirement for the claimants’ claims in the tort of bribery and for dishonest assistance, and therefore all such claims failed.
The Supreme Court held that in one case (Johnson), the lender was liable to the customer because the relationship between them had been “unfair” within the meaning of s.140A Consumer Credit Act 1974 (“CCA”). This leaves scope for customers to consider bringing similar claims against lenders, depending on the facts of their individual case.
Following the judgment, on Sunday, the FCA announced it will consult on a compensation scheme for motor finance customers, with such a scheme to be in place by 2026.[1]
Overview
At 16.35 on Friday 1 August 2025, the Supreme Court handed down judgment on the three linked appeals in Hopcraft v Close Brothers Limited, Johnson v FirstRand Bank Limited, Wrench v FirstRand Bank Limited [2025] UKSC 33.[2]
The Supreme Court normally hands down judgments on Wednesday mornings. The hand down time of this judgment was unusual as the outcome (either way) was likely to impact the market. The Financial Conduct Authority (FCA) asked that the judgment be made available outside market hours to allow time for it to be digested and to avoid market disorder.
The appeals concerned tripartite motor finance transactions. In these transactions, a customer goes into a car dealership to buy a vehicle. The car dealer then obtains an offer of finance from a lender on hire purchase terms. If the offer is acceptable to the customer then (1) the dealer sells the car to the lender, (2) the customer enters into a back to back hire purchase agreement with the lender for a specified term, usually with an option to return or purchase the car at the end of the term, (3) the customer drives away the car, and (4) the lender pays the dealer a commission for the introduction of the hire purchase business.
The claimants claimed that the lenders had failed properly to disclose the commission and that this meant the lenders (1) were liable in the tort of bribery and (2) had dishonestly assisted in a breach of fiduciary duty owed by the car dealers to the claimants.
Separately, in one of the three cases (Johnson), the Supreme Court had to consider whether the circumstances around the credit agreement (including the commission arrangements) gave rise to an “unfair relationship” under s.140A CCA.
The Supreme Court’s judgment has wide significance. In the UK, around two million vehicles are bought using finance each year.[3] Many thousands of customers have already brought similar claims and complaints against motor finance lenders, and lenders have provisioned significant sums for responding to these and other claims.
The judgment
Requirements for a fiduciary duty
The Supreme Court found that the key requirement is 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.” [90].
For a fiduciary relationship to arise, there must be “the assumption of responsibility by the fiduciary to act exclusively on behalf of the other in the conduct of the other’s affairs” [100]. The fiduciary may expressly undertake to act in this way, or their behaviour may allow equity to identify such an undertaking.
The Supreme Court noted that “As a general rule, outside well-established fiduciary relationships, such as company director, partner, or agent, in a commercial context “it is normally inappropriate to expect a commercial party to subordinate its own interests to those of another commercial party”: Snell’s Equity, 35th ed (2025), para 7-007” [110] and that “[i]t is important not to distort the commercial bargain between the parties to a contract by too readily implying fiduciary obligations into the commercial relationship” [102].
In the commercial context, where one party has a personal financial interest in bringing the transaction into fruition, “it is not one in which an undertaking of undivided loyalty and altruism can readily be implied” [110].
Importantly, the Supreme Court noted that someone does not become a fiduciary because another person places trust and confidence in them or because another person is vulnerable. The Supreme Court found that “the relationship of trust and confidence is the consequence, and not the cause, of a fiduciary duty” and that, similarly, “the vulnerability which is the typical characteristic of a person to whom a fiduciary duty is owed, is a consequence and not a cause of a fiduciary relationship” [108].
No fiduciary duty
The Supreme Court found that the car dealers did not owe a fiduciary duty to the customers when acting as a credit broker in arranging their car finance:
- The applicable regulatory framework was “part of the objective context in which contentions that dealers were and are under fiduciary duties need to be assessed” [266]. The disclosures required by the Consumer Credit Sourcebook (CONC) did not require the car dealers to make the types of disclosures about the commission that would have been required of a fiduciary [261] and “[i]t is clear therefore that the regulatory regime, which the FCA operates on statutory authority, is not premised on car dealers when acting as credit brokers being subjected to the no profit and no conflict rules and having the obligations of full disclosure of a fiduciary” [265].
- Each car dealer was seeking to sell a car throughout their relationship with the lender and the customer. The car dealer remained a salesperson from start to end. The fact that the car dealer retained their own commercial interest throughout was irreconcilable with a fiduciary duty of loyalty to the customer. “Neither the parties themselves nor any onlooker could reasonably think that each of the participants to such a negotiation was doing anything other than considering their own interests” [268].
- When each car dealer acted as intermediary in putting forward finance options, they were not providing a distinct and separate service in their own right. “It was simply a means whereby the dealer could make use of its knowledge and contacts in the car finance market to oil the wheels of what was for it essentially a sale transaction from start to finish” [269].
- None of the car dealers gave an express undertaking or assurance to the customer that they were putting aside their own commercial interests [270].
- Each car dealer was not acting as the customer’s “agent” in law: “there was no agency undertaken by the dealer for the customer in the negotiation of the finance package with the lender, in the sense in which agency is a term used in the law (rather than just a loose label where someone agrees to do something for someone else). The dealer did not have the authority of the customer to enter into legal relations with the lender. Those legal relations were entered into by the customer personally signing the hire purchase or other finance agreement” [271].
- Whilst there was an element of dependency or vulnerability on behalf of each customer, this did not to create a fiduciary duty: “dependency or vulnerability are not, as we have already explained, indicia of a fiduciary relationship, in the absence of an undertaking of loyalty” [274].
- Each car dealer’s offer to find a finance package may have engendered trust and confidence, but this did not create a fiduciary duty. Any trust and loyalty did not go “beyond that which may frequently arise between commercial parties negotiating at arm’s length, such as that which the customer might repose in advice received from a shop assistant or wine waiter, or in the advice which the dealer might give as to the best roof rack to source from the market and add to the car” [275].
In conclusion, the Supreme Court held that “[t]he typical features of the transactions are incompatible with the recognition of any obligation of undivided or selfless loyalty by the dealer to the customer when sourcing and recommending a suitable credit package” [276].
No liability for bribery
The tort of bribery may be engaged by the payment of a secret commission.
The Supreme Court found that “liability for bribery […] is dependent on the recipient of the bribe being a fiduciary” [188]. The Supreme Court noted that the tort of bribery is a subset of the ‘no profit’ rule, whereby fiduciaries are strictly prohibited from making any profit themselves out of their fiduciary position without the fully informed consent of their principal [71].
The lenders could not be liable in the tort of bribery given the Supreme Court’s conclusion that the car dealers did not owe the customers a fiduciary duty of loyalty.
The Supreme Court went on to consider what level of disclosure a fiduciary would be required to give in order to obtain the informed consent of their principal. The Supreme Court found that “what is required is full disclosure of all material facts” [226]. The Supreme Court held that “[p]artial disclosure has never been enough” [226]. What amounts to “material facts” will depend on the circumstances of any particular case.
In reaching its decisions regarding bribery, the Supreme Court disagreed with the Court of Appeal’s judgment in this case. The Court of Appeal had found that the tort of bribery could be engaged when the recipient was under a duty to provide information, advice, or recommendations on a disinterested basis. It had also found that disclosure of the possibility of a payment could be enough to exclude liability for bribery.
No dishonest assistance
Dishonest assistance arises when someone helps a fiduciary to breach their duty (e.g. to breach the ‘no profit’ rule). It makes them liable as an accessory to that breach, provided that their assistance was both material and dishonest.
The Supeme 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.
The Supreme Court declined to opine on what would be required to meet the test of dishonesty for the purposes of dishonest assistance, which was no longer relevant to the appeals given the finding of no fiduciary duty.
Unfair relationship
In Johnson, the claimant had a separate claim that the relationship with his lender was unfair within the meaning of s.140 CCA.
The Supreme Court recognised that the test of the unfairness of the relationship of debtor and creditor is stated in general terms which permits courts to take account of a very broad range of factors. As such, “[t]he application of the test in each case will, inevitably, be a highly fact-sensitive exercise” [297].
The Supreme Court nevertheless considered that the “factors in this non-exhaustive list will normally be relevant: the size of the commission relevant 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” [319].
The Supreme Court held that the relationship between the claimant and the lender was unfair on the particular facts of Johnson. This was on the basis that:
- The commission represented around 55% of the total charge for credit (interest plus fees) [323].
- The failure to disclose the existence of the commission was a breach of CONC 4.5.3R [329].
- The failure to disclose the commercial tie between the dealer and lender was “highly material” as the dealer’s documents gave the impression that finance offers were being sought from a panel of 22 lenders whereas the lender in this case had the right of first refusal [330].
Commentary
The law on secret commissions
This is a very important decision that goes a long way towards clarifying the law around secret commissions.
Before the Supreme Court judgment:
- the tort of bribery could be engaged when the recipient was under a duty to provide information, advice, or recommendations on a disinterested basis; and
- disclosure of the possibility of a payment could be enough to exclude liability for bribery.
Following the Supreme Court’s judgment:
- the tort of bribery will only be engaged when the recipient is under a fiduciary duty of loyalty (a “disinterested duty” is not enough); and
- once the fiduciary duty of loyalty applies, the principal must receive disclosure of “all material facts” to be able to provide informed consent to a payment (there is no longer a concept of a “half-secret” payment).
Impact on claims management firms
The judgment will be a setback for claims management firms (“CMFs”) and their funders. CMFs will also not welcome the FCA’s announcement regarding a consumer redress scheme (see further below).
Lord Reed, in delivering the judgment, criticised CMFs for encouraging claimants to sign up with them between the Court of Appeal and the Supreme Court’s decisions, when the relevant law was still in flux. This criticism potentially provides a platform for customers to exit their agreements with CMFs without charge, allowing them to participate in any redress scheme for free.
The Solicitors Regulation Authority (“SRA”) and the FCA recently cautioned CMFs over poor practices in motor finance commission claims.[4] We expect that the SRA and FCA will continue efforts to ensure CMFs inform customers that they can participate in any redress scheme for free.
Impact on motor finance court claims
The judgment is a welcome outcome for motor finance lenders, as it alleviates the risk of bribery and secret commission claims. These claims could have been extensive, applying to all commission arrangements (both discretionary models and fixed rate) and potentially affecting their “back book” over many years with more uncertain remedies.
In principle, customers can choose not to participate in a redress scheme and pursue a claim via court proceedings. Future claims will need to focus on s.140A CCA, which requires the court to consider a very broad range of factors to see whether the relationship between the claimant and the lender was unfair. Lenders will be evaluating the Supreme Court’s non-exhaustive factors to understand the risks associated with these claims.
The appeal in Angel, before the Court of Appeal in April 2026, will be important in determining whether a single claim form can be used to group s.140A "unfair relationship" claims despite their fact-sensitive nature. This case will likely influence how CMFs approach such claims.
Impact on other broker/commission arrangements
Parties in other sectors will also be considering the implications of the Supreme Court’s judgment for other broker/commission arrangements.
In the energy broker context, there is a pending appeal to the Supreme Court in the case of Expert Tooling and Automation Ltd v Engie Power Limited. These parties will be reviewing the Supreme Court judgment in Hopcraft to see which issues survive or may need amending.
The Supreme Court’s judgment in Hopcraft relates to car dealers acting as credit brokers and, in various places, is clearly limited to its own facts. For example, unlike car dealers, most other brokers will be pure intermediaries rather than having a dual role of selling a product and arranging finance for that sale. However, the Supreme Court has spent time setting out the requirements for a fiduciary duty to arise recognising the established categories of fiduciary relationships and confirming that outside of these established categories there is a relatively high bar for a fiduciary duty to be assumed. The circumstances of each broker arrangement will need to be examined on the facts of each case.
FCA consumer redress scheme
The FCA had committed to confirm its position regarding a potential consumer redress scheme within six weeks of the judgment (i.e. by 12 September 2025). On Sunday 3 August 2025, the FCA confirmed that it will issue a consultation in early October 2025 regarding the terms of a scheme:
“Our detailed review of the past use of motor finance has shown that many firms were not complying with the law or our disclosure rules that were in force when they sold loans to consumers. Where consumers have lost out, they should be appropriately compensated in an orderly, consistent and efficient way.”
“We aim to publish the consultation by early October and for it be open for 6 weeks. No final decisions have yet been taken in relation to the scheme. We aim to finalise the rules such that the scheme can launch in 2026, with consumers starting to receive compensation next year.”
The consultation will cover how firms should assess whether the relationship between the lender and borrower was unfair for the purposes of the proposed scheme and, if so, what compensation should be paid.
The FCA have confirmed that the redress scheme should cover agreements dating back to 2007, to be consistent with the complaints that the Financial Ombudsman can consider and to ensure the scheme is comprehensive. This would mean consumers would not need to use other routes to secure compensation and prevent large numbers of ongoing disputes in the courts.
The FCA currently estimates that most individuals will probably receive less than £950 in compensation. The total costs of the scheme are estimated to be around the mid-point between £9bn to £18bn (with this higher range considered unlikely). The FCA expects a healthy finance market for new and used cars to continue notwithstanding any redress scheme.
[1] ‘FCA to consult on a compensation scheme for motor finance customers’, 3 August 2025 (link)
[2] The judgment is available here.
[3] ‘FCA reaction to Supreme Court motor finance judgment’, 1 August 2025 (link)
[4] ‘SRA and FCA warn law firm and claims management companies over poor practices in motor finance commission claims, 31 July 2025 (link).
