Johnson v FirstRand Bank Ltd (London Branch) (t/a MotoNovo Finance)

Factual and Procedural Background

These three consolidated appeals concern situations where consumers sought to purchase used cars from motor dealers who also offered to arrange finance on their behalf. The dealers agreed the vehicle price before approaching lenders and sometimes offered finance at a lower price than the indicative cash price. The dealers acted both as car sellers and credit brokers by submitting consumers' financial information to lenders, who then made credit offers. Consumers were generally unaware that dealers received commissions from lenders for introducing business, commissions often financed by interest charged under the credit agreements.

The commissions were paid under arrangements between lenders and dealers, often undisclosed or partially disclosed to consumers. Prior to regulatory changes in January 2021, commissions could be calculated based on interest rate differentials ("difference in charge" or "DIC" model) or as a fixed percentage of the amount borrowed ("Revenue Share of Advance" or "RSA" model). These arrangements created conflicts of interest as dealers had incentives to maximize commissions through interest rates.

The claimants were financially unsophisticated consumers on low incomes who entered into hire-purchase agreements arranged by dealers acting as credit brokers. Each case involved a single finance offer accepted by the claimant. The same lender, Company A, provided finance in two cases, while Company B was the lender in the third. The dealers profited from car sales and received commissions from lenders, which were secret or partially disclosed to claimants.

The claimants brought proceedings seeking the return of commissions, alleging that the dealers owed them a duty to provide impartial information, advice, or recommendations ("disinterested duty") and that the lenders were liable as accessories to breaches of this duty. Claims were also made under sections 140A-C of the Consumer Credit Act 1974 ("the 1974 Act"), although only one claimant's statutory claim was considered in the judgment.

At first instance and on appeal, differing views were expressed regarding whether commissions were secret or partially disclosed, whether fiduciary duties existed, and the applicability of statutory claims. Permission for further appeals was granted, and the appeals were expedited and heard together to provide authoritative guidance due to the volume of similar cases.

Legal Issues Presented

1. Does a statement in the credit agreement terms that commission may or will be paid negate secrecy if the borrower neither reads nor is directed to read it?
2. In a partial disclosure case, is a fiduciary duty necessary for establishing accessory liability of the commission payer, or does the "disinterested duty" suffice?
3. If a fiduciary duty exists in a partial disclosure case, what are the requirements to establish accessory liability of the lender?
4. Did the brokers owe the relevant duties to the claimants in these cases?
5. Is the lender liable for repayment of the commission?

Additional issues specific to one appeal include:

1. Whether the relationship between the claimant and lender was unfair under sections 140A-C of the 1974 Act;
2. Whether remitting the statutory claim for further fact-finding was correct;
3. Whether the appellate court or County Court should assess the appropriate remedy.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Wood v Commercial First Business Ltd [2021] EWCA Civ 471; [2022] Ch 123	Established "disinterested duty" as sufficient to found claims for disgorging secret commissions without requiring fiduciary relationship; treated payer of secret commission as primary wrongdoer.	Binding authority. Court followed Wood in holding brokers owed disinterested and fiduciary duties; distinguished secret vs partial disclosure cases and primary vs accessory liability.
Hurstanger Ltd v Wilson [2007] EWCA Civ 299; [2007] 1 WLR 2351	Recognised "half-way house" or partial disclosure scenario requiring fiduciary duty for accessory liability; distinguished secret commissions entitling to primary liability.	Applied to establish that partial disclosure negates secrecy but requires fiduciary duty for accessory liability of lender; guided analysis of informed consent and disclosure sufficiency.
McWilliam v Norton Finance UK Ltd [2015] EWCA Civ 186; [2015] 1 All ER (Comm) 1026	Confirmed fiduciary relationship arises where broker implicitly represents competitive offers; lack of fully informed consent entitles to account for commissions.	Used for analogy to brokers' fiduciary duties in present cases despite no explicit advice or recommendation.
Medsted Associates Ltd v Canaccord Genuity Wealth (International) Ltd [2019] EWCA Civ 83; [2019] 1 WLR 4481	Fiduciary duty may not require disclosure of commission amounts to sophisticated investors when sufficient disclosure for informed consent exists.	Distinguished on facts; confirmed scope of fiduciary duty depends on circumstances and consumer sophistication.
Prince Arthur Ikpechukwu Eze v Conway [2019] EWCA Civ 88	Followed Hurstanger principles on partial disclosure and fiduciary duties.	Reinforced legal framework for accessory liability in partial disclosure cases.
Twinsectra Ltd v Yardley [2002] UKHL 12; [2002] 2 AC 164	Defined dishonesty standard for accessory liability in equity for assisting breach of fiduciary duty.	Applied to assess lender's knowledge and dishonesty in procuring broker's breach of fiduciary duty.
Lifestyle Equities CV and another v Ahmed and another [2024] UKSC 17; [2024] 2 WLR 1297	Confirmed that knowingly procuring another to commit actionable wrong results in accessory liability; knowledge or deliberate blindness to essential facts suffices.	Supported conclusion that lender's knowledge of agency and commission payment without informed consent establishes accessory liability.
Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378	Established principles of accessory liability in equity for dishonest assistance of breach of fiduciary duty.	Referenced in analysis of lender's accessory liability for commission payments.
Plevin v Paragon Personal Finance Limited [2014] 1 WLR 4222	Section 140A of the Consumer Credit Act 1974 interpreted to encompass unfairness arising from non-disclosure of commission amounts; creditor liable for unfair relationship.	Applied to find lender liable for unfair relationship due to non-disclosure of significant commission, supporting statutory claim.

Court's Reasoning and Analysis

The court began by characterising the roles of the dealers as both sellers and credit brokers, with the latter role involving a duty to find and offer finance deals suitable and competitive for the consumer. This dual role gave rise to a "disinterested duty" and, in these cases, an ad hoc fiduciary duty, owing to the trust and reliance placed by financially unsophisticated consumers on the brokers.

The court rejected the argument that the dealers were not fiduciaries due to their simultaneous role as sellers or because consumers did not pay brokers fees directly. The fiduciary duty arose from the specific tasks undertaken in sourcing finance and the reliance of consumers on brokers' loyalty and impartiality.

The court analysed the sufficiency of disclosure regarding commissions. In two cases, the commission was secret due to lack of meaningful disclosure: one case involved no mention of commission, and the other buried the disclosure in inconspicuous standard terms unlikely to be read or understood by the consumer. In the third case, a "Suitability Document" partially disclosed the possibility of commission but contained misleading statements and omitted critical facts such as the dealer's contractual tie to the lender and the calculation of commission.

Applying precedent, the court held that secret commissions engage primary liability for the payer (lender), while partial disclosure cases require a fiduciary duty for accessory liability. The lenders in the secret commission cases were primary wrongdoers; in the partial disclosure case, the lender was liable as an accessory for procuring the broker's breach of fiduciary duty.

The court further held that the lenders knew or deliberately ignored that informed consent had not been obtained, satisfying the dishonesty requirement for accessory liability. The lenders failed to ensure full disclosure themselves and relied improperly on brokers to disclose commissions, despite obvious conflicts of interest and incentives to conceal material facts.

Regarding the statutory claim under the Consumer Credit Act 1974, the court found that non-disclosure or partial disclosure of commission does not automatically render the creditor-debtor relationship unfair. However, on the facts of the partial disclosure case, the relationship was unfair due to the high commission, inflated purchase price, and concealment of material facts, warranting relief under the Act.

The court also addressed procedural issues, concluding that remitting the statutory claim for further fact-finding was unnecessary given the uncontradicted evidence and documents, and that the appellate court could determine the claim and appropriate remedy.

Finally, the court acknowledged tensions between the authorities but emphasized that both Wood and Hurstanger are binding and that the present judgment provides guidance for the many similar cases pending in lower courts. It suggested that a future Supreme Court ruling may be needed to clarify the boundaries of liability in secret and partial disclosure cases.

Holding and Implications

The court ALLOWED ALL THREE APPEALS.

It held that:

• The dealers acted as credit brokers and owed the claimants both a disinterested duty and a fiduciary duty of loyalty in arranging finance.
• In cases of secret commission, the lender is a primary wrongdoer liable for repayment of the commission.
• In partial disclosure cases, a fiduciary duty is required to establish accessory liability of the lender, which was found on the facts.
• The lenders were liable to repay the commissions to the claimants, with interest.
• One claimant's statutory claim under the Consumer Credit Act 1974 succeeded because the relationship was unfair due to non-disclosure and the nature of the commission arrangements.

The decision directly affects the parties by requiring lenders to repay commissions paid to brokers without proper disclosure or consent and confirms that dealers acting as credit brokers owe fiduciary duties to consumers. No new precedent was set beyond clarifying and applying existing binding authorities, but the judgment provides important guidance for numerous similar cases in the County Courts.