On Friday 1 August, the UK Supreme Court handed down its judgment in three consolidated appeals on the receipt of commissions by motor dealers from lenders in connection with the provision of finance for the hire purchase of cars. In the relevant cases, the commissions were either not disclosed, or only partly disclosed, to customers.

As acknowledged by the Supreme Court, while the sizes of the individual commission sums were modest, the outcome of the appeals is of major significance for UK lenders, motor dealers and the many buyers who obtain cars through finance arrangements. While the case was decided under the laws of England & Wales, the outcome has been closely followed in Ireland; the points considered in the UK Supreme Court’s judgment are of interest given the widespread use of car finance arrangements in the Irish market and the Central Bank of Ireland’s engagement with industry on the topic.

Factual background

By way of reminder, in each case under appeal, the motor dealer received a commission from the lender and there was either no disclosure to the customer of the existence of the commission or partial disclosure to the effect that a commission (of unspecified amount) might be paid.

The customers claimed that the commissions amounted to bribes, or to secret profits received by the dealers as a fiduciary (i.e. someone who has undertaken to act for or on behalf of another in circumstances which give rise to an obligation of single-minded loyalty, to the exclusion of the fiduciary’s own interests).

Each of the customers also attempted to re-open their hire-purchase agreements under the UK Consumer Credit Act 1974 (“CCA”) on the basis that the agreements gave rise to an unfair relationship. One CCA claim survived for determination by the Supreme Court. In the UK, the provision of motor finance on terms exemplified by the transactions under appeal is a regulated credit activity under the CCA. Lenders and dealers acting as credit brokers in the sourcing of finance fall within that regulatory framework. The Supreme Court noted that although rules set out in the UK Financial Conduct Authority’s Handbook in the Consumer Credit Sourcebook (“CONC”) require a dealer to disclose commissions if they could affect the dealer’s impartiality or have a material impact on the customer’s transactional decision, nothing in the regulatory regime requires lenders or dealers generally to disclose the existence or amount of any commission paid by lender to dealer, or to obtain the customer’s consent to the payment.

In summary, the Supreme Court found:

1. No fiduciary duty owed by dealers
2. No secret commissions or bribes
3. The relationship between one of the borrowers and one of the lenders was unfair within the meaning of section 140A of the CCA

No Fiduciary Duty Owed by Dealers

The Supreme Court held that car dealers acting as credit brokers did not owe a fiduciary duty to consumers in these cases. Therefore, the receipt of commission did not automatically amount to a breach of fiduciary duty.

A fiduciary must be guided solely by the interests of the other person in the fiduciary relationship (the principal) and not by the fiduciary’s own interest. Fiduciaries must not profit from their position as a fiduciary or place themselves in a position where the fiduciary’s interests may conflict with their duty to pursue the principal’s interest (in each case unless their principal gives fully informed consent).

Fiduciary duties arise where a person consciously assumes (or undertakes) responsibility in relation to the management of the property or affairs of another person 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 person. The Supreme Court noted that the law did not impose a duty of undivided loyalty. That duty arises only where it is undertaken, expressly or impliedly, by the alleged fiduciary. Where the duty arises, equity imposes the no profit and no conflict rules as a means of ensuring that the duty of single-minded loyalty is adhered to.

The court noted that, generally speaking, it is inappropriate to expect a commercial party to subordinate its own interests. In particular, a commercial transaction in which one party has a financial interest, (known or apparent to the other party) in bringing about the transaction, is not one in which an undertaking of single-minded loyalty can readily be implied. It was with this in mind, that the Supreme Court assessed whether the dealers owed fiduciary duties to their customers.

The typical features of the four transactions which the parties put forward as relevant to the determination of this issue, were:

1. Each of the three participants in the negotiation of the transaction was separately engaged at arm’s length from the other participants in the pursuit of a separate commercial objective of their own. It would not be reasonable to consider that each of the participants was doing anything other than considering their own interests.
2. The activity of the dealer as an intermediary between customer and lender was not provided by the dealer as a distinct and separate service in its own right. This activity was ancillary to the sale of the car.
3. The dealer did not give any kind of express undertaking or assurance to the customer that in finding a suitable credit deal for the customer it was putting aside its own commercial interest in the transaction.
4. There was no agency undertaken by the dealer for the customer in the negotiation of the finance package with the lender. 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.
5. While there may be an element of dependency upon or vulnerability to the dealer affecting the customer in relation to the finance package, such dependency or vulnerability are not indicative of a fiduciary relationship in the absence of an undertaking of loyalty.
6. The way in which a dealer offers the service of finding a suitable finance package may engender an element of trust and confidence by the customer in the dealer, in the sense that the customer may assume that the dealer will locate the most suitable finance package for the customer’s particular needs, but this does not go beyond that which may frequently arise between commercial parties negotiating at arm’s length,

In the Supreme Court’s judgment these typical features of the transactions under review did not give rise to a fiduciary duty (and therefore no conflict and no profit duties).

No Secret Commission or Bribe

For the purposes of the law of torts (civil wrongs), a bribe or “secret commission” is a payment made by a person to an agent (or other fiduciary) that is known to be acting as the agent of the other person with whom he or she is dealing, without that other party’s knowledge and consent.

The Supreme Court considered what duty relationship engages the tort of bribery and, in particular, whether any duty relationship less than a full fiduciary duty of single-minded loyalty is sufficient to engage the tort. The court noted that there is nothing inherently objectionable about paying commission, or about seeking to influence people’s behaviour by giving them benefits of one kind or another. However, the position is different where the recipient is a fiduciary and the payment breaches the no conflict rule.

A fiduciary relationship can exist where the fiduciary is under a duty to provide information, advice or recommendations on a disinterested basis. That duty does not flow from the mere fact that a person is in a position to influence or affect another person’s decision but instead depends on the recipient of the alleged bribe being a fiduciary. A purely contractual duty to give disinterested advice, for example, would not be sufficient in itself to engage the tort of bribery.

A fiduciary’s liability to account for profits made in breach of his duties can be avoided if full disclosure (of all material facts) is made and the principal gives his or her fully informed consent. What amounts to full disclosure will depend on the circumstances.

The Supreme Court held that the following (typical) features of the transactions under review do not give rise to a fiduciary duty sufficient to create liability for bribery:

1. Each party to each tripartite transaction (customer, dealer and lender) was engaged at arm’s length from the other participants in the pursuit of separate objectives.
2. Neither the parties themselves nor any onlooker could reasonably think that any participant was doing anything other than considering their own interest.
3. The dealer was not providing credit brokerage as a distinct and separate service from the sale transaction.
4. The dealer did not give any kind of express undertaking or assurance to the customer that in finding a suitable credit deal it was putting aside its own commercial interest as seller.
5. The dealer was not an agent for the customer in the negotiation of the finance package with the lender. The dealer was undertaking an intermediary activity and did not have the authority to enter into legal relations on the customer’s behalf.

The Supreme Court held that these features were incompatible with the recognition of any obligation of single-minded or selfless loyalty by the dealer to the customer when sourcing and recommending a suitable credit package. Any element of trust and confidence that the dealer will secure the best available finance package is not of the type where the customer trusts the dealer to act with single-minded loyalty towards the customer, to the exclusion of its own interests. The claims in both equity and the tort of bribery were therefore held to fail.

Consumer Credit

As noted above, each of the customers attempted to re-open their hire-purchase agreements under the CCA on the basis that the agreements gave rise to an unfair relationship. One CCA claim survived for determination by the Supreme Court.

The test of unfairness under section 140A of the CCA permits courts to take account of a very broad range of factors. By itself, the fact that a commission was not disclosed or only partially disclosed did not suffice to make the relationship between lender and customer unfair; it was one factor taken into account in the overall assessment. The Supreme Court considered that there were three further relevant factors in this particular case:  

1. The undisclosed commission was very high, amounting to 25% of the advance of credit and 55% of the total charge for credit (comprising interest and fees).
2. The documents provided to the customer did not disclose the existence of a commercial tie between the lender and the dealer in which the lender had a right of first refusal, but instead created the false impression that the dealer was offering products from a range of lenders and recommending a product that best met the customer’s individual requirements.
3. The customer did not read any of the documents provided by the dealer, however the court queried to what extent a lender could reasonably expect a customer (especially a commercially unsophisticated customer) to have read and understood the detail of such documents. In any event, no prominence was given to the relevant statements in the documents.

For these reasons, the Court held that the relationship between the borrower and the lender was unfair within section 140A of the CCA and the commission should be paid to the customer with appropriate interest.

Since the Supreme Court delivered its judgment on 1 August, the UK Financial Conduct Authority has announced that it will launch a consultation on an industry-wide compensation scheme in the UK, due to commence in October 2025. In Ireland, market participants will be aware that on 12 June 2024 the Central Bank of Ireland issued its ‘Dear CEO’ letter on the use of discretionary commission arrangements in the Irish market. Market participants that applied discretionary commission arrangements will, at this stage, have taken all steps necessary to comply with the supervisory expectations outlined in the ‘Dear CEO’ letter. All such market participants should continue to closely monitor the position in the UK and Ireland and keep in mind their on-going duties under the Irish consumer protection framework.

It is important to note that this is a UK court’s judgment based on UK legislation, however it does serve to highlight the importance of Irish service providers ensuring they are compliant with the relevant provisions of Irish consumer protection legislation and making preparations for the revised Consumer Protection Code due to take effect from 24 March 2026.