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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Johnson v FirstRand Bank Ltd (London Branch) (t/a MotoNovo Finance) [2024] EWCA Civ 1282 (25 October 2024) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2024/1282.html Cite as: [2024] WLR(D) 472, [2024] EWCA Civ 1282 |
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2024] EWCA Civ 1282 | ||
Case No: CA- 2024-00353Case No: CA- 2024-00482 |
CIVIL
DIVISION)
ON SECOND APPEAL FROM THE COUNTY COURT AT CARDIFF
HIS HONOUR JUDGE JARMAN KC
ON APPEAL FROM THE COUNTY COURT AT NEWPORT
DEPUTY DISTRICT JUDGE SANDERCOCK
Claim No J03YX090
ON SECOND APPEAL FROM THE COUNTY COURT AT BIRMINGHAM
HIS HONOUR JUDGE WORSTER
ON APPEAL FROM THE COUNTY COURT AT STOKE ON TRENT
DEPUTY DISTRICT JUDGE HARROP
Claim Number J00SQ921
ON APPEAL FROM THE COUNTY COURT AT HULL
DEPUTY DISTRICT JUDGE MORRIS
Claim Number K00KH177
Strand, London, WC2A 2LL |
||
2024 |
B e f o r e :
LORD JUSTICE BIRSS
and
LORD JUSTICE EDIS
____________________
MARCUS GERVASE JOHNSON | Case No: CA-2023-001453 Appellant/ Claimant |
|
| - and - |
||
FIRSTRAND BANK LIMITED (London Branch) T/AMOTONOVO FINANCE |
Respondent/Defendant |
|
And Between: |
||
| ANDREW WRENCH |
Case No: CA- 2024-00353Appellant/ Claimant | |
| - and - |
||
FIRSTRAND BANK LIMITED (London Branch) T/AMOTONOVO FINANCE |
Respondent/Defendant |
|
And Between: |
||
| (1) AMY LOUISE HOPCRAFT (2) CARL HOPCRAFT |
Case No: CA- 2024-00482Appellants/ Claimants | |
| - and - |
||
| CLOSE BROTHERS LIMITED |
Respondent/Defendant |
____________________
Robert Weir KC, Jonathan Butters and Thomas Westwell (instructed by HD Law
Ltd)
for the Appellant
Matthew Hardwick KC and Simon Popplewell (instructed by Eversheds Sutherland (International) LLP) for the Respondent
Appeal CA-
2024-00353
Robert Weir KC, Jonathan Butters and Thomas Westwell (instructed by Consumer Rights Solicitors) for the Appellant
Matthew Hardwick KC and Simon Popplewell (instructed by Eversheds Sutherland (International) LLP) for the Respondent
Appeal CA-
2024-00482
Robert Weir KC, Jonathan Butters and Thomas Westwell (instructed by Consumer Rights Solicitors) for the Appellants
Ian Wilson KC and William Day (instructed by Walker Morris LLP) for the Respondent
Hearing dates: 2, 3 and 4 July
2024
____________________
VERSION
OF APPROVED JUDGMENT
Crown Copyright ©
2024
by circulation to the parties or their representatives by e-mail and by release to the National Archives.Lady Justice Andrews, Lord Justice Birss and Lord Justice Edis:
INTRODUCTION
Background
vehicle
is agreed before the dealer approaches the prospective lender on their behalf. Sometimes, as an additional incentive to choose the finance option, this will be lower than the indicative cash price. The dealer then obtains pertinent information about the consumer's financial situation, which he takes to a lender or a panel of lenders.
vehicle
and the price he receives. But, at least until the Financial Conduct Authority ("FCA") introduced new rules with effect from 28 January 2021, the consumer may have been surprised to discover that the dealer, who arranged the finance on their behalf, also received a commission from the lender for introducing the business to them, financed by the interest charged under the credit agreement. Indeed, only quite sophisticated consumers may be aware that a dealer in this situation is fulfilling two different commercial roles in what the consumer is likely to regard as a single transaction. The dealer is acting as a seller of the cars, and also as a credit broker. A credit broker offers services to help people to find credit by considering the market (or a particular section of the market) and introducing them to a potential lender who can offer them a deal which is suitable for their requirements. There is no hint in the evidence in any of these cases that the consumers concerned were aware of this.
vary
as a result, and the dealer would have an obvious incentive to fix the rate of interest as high as possible within the range in order to maximise his gain. These types of agreement are now banned by the FCA. Further or alternatively, the commission might be calculated as a fixed percentage of the amount borrowed by the customer – this is known as a Revenue Share of Advance or "RSA" model.
FirstRand
Bank
Ltd
(trading as MotoNovo Finance) ("
FirstRand")
provided the finance in Mr
Johnson's
and Mr Wrench's transactions. The lender in Miss Hopcraft's case was Close Brothers
Ltd
("Close").
Johnson,
the claimant did not know and was not told that a commission was to be paid. However, the lender's standard terms and conditions made reference to the fact that "a commission may be payable by us [i.e. the lender] to the broker who introduced the transaction to us." In
Johnson
alone, the dealer/broker supplied the claimant with a document called "Suitability Document Proposed for Mr Marcus
Johnson",
which he signed. This said, near the beginning, "…we may receive a commission from the product provider". This document provides a possible explanation for why Mr
Johnson's
case is put in a different way from that of Mr Wrench by Mr Robert Weir KC, who represents them both.
v
Commercial First Business
Ltd
[2021]
EWCA
Civ
471; [2022] Ch 123 ("Wood") to be sufficient to found a claim for the disgorging of a secret commission, and that they were "agents" within the broad definition of that term adopted in Wood at [51], namely:
"Someone with a role in the decision-making process in relation to the transaction in question, e.g. as agent, or otherwise someone who is in a position to influence or affect the decision taken by the principal".
FirstRand
in Mr Wrench's case). They contend that the lenders made payment of the commissions knowing of the "agency" relationship between the borrowers and the brokers, and failed to disclose the payment, and therefore they were entitled to rescission of the credit agreements and to payment of the commission as damages or as money had and received.
Johnson's
case, and Mr Wrench's alternative case, is that even if the lender did not pay a secret commission, the brokers never obtained the claimants' fully informed consent to the payment. Although the credit agreement indicated that commission might be paid, the claimants were not told that it would be, nor the amount nor any other material facts about the commission (e.g. how it was to be calculated). Thus the situation was of the type identified in Hurstanger
Ltd
v
Wilson [2007]
EWCA
Civ
299; [2007] 1 WLR 2351 ("Hurstanger") as a "half-way house" and the commission was what was described in Wood as "half-secret." Although that expression (and the converse expression "fully secret") are convenient shorthand, and were used as such in the judgments below and by counsel before us, we find them imperfect and potentially misleading: something is either secret or it is not. Therefore in this judgment we will refer to the "half-way house" scenario as one of "partial disclosure". "Disclosure" in this context means taking reasonable steps to ensure that the fact actually comes to the attention of the consumer in a way which makes its significance apparent.
Johnson's
claim under the 1974 Act is considered in this judgment.
The history of the three appeals
Johnson
was the first of the three cases to be decided. Mr
Johnson
was unsuccessful in his claim before the deputy district judge ("DDJ") on all grounds. On the first appeal, Mr
Johnson
abandoned his original contention that the commission was "fully" secret, and the argument proceeded on the basis that it was a partial disclosure case. HH Judge Jarman KC agreed with that characterisation. He held that there had been sufficient disclosure to negate secrecy, but also a failure to obtain the principal's fully informed consent. However, on his interpretation of the decision in Wood, the existence and breach of the disinterested duty would only entitle the principal to recover a commission if it was "fully" secret. He held that in a partial disclosure case, nothing short of a fiduciary duty would suffice to enable the claim for the return of the commission to succeed under the general law, and there was no such fiduciary duty. He remitted the claim under the 1974 Act to the DDJ for further fact-findings to be made concerning the disclosure of the commission, which he considered essential to the evaluation of unfairness.
FirstRand's
appeal. HH Judge Worster rejected the proposition that in order to negate secrecy, the terms referring to the payment of commission would have to be drawn expressly to the borrower's attention. He held that this was a partial disclosure case and that in order to succeed in his claim, Mr Wrench had to establish that he was owed a fiduciary duty by the credit broker and that the duty was breached. He followed the reasoning of HH Judge Jarman KC in the
Johnson
case. The judge declined an invitation to consider the claim under s.140A of the 1974, because the court at first instance had not considered the matter and had made no relevant fact-findings. That aspect of Mr Wrench's claim is therefore not part of his appeal to this Court.
Johnson
and Wrench permission for a second appeal was granted by Birss LJ. On 27 February
2024
HH Judge Sarah Richardson transferred the appeal in Hopcraft to the Court of Appeal pursuant to CPR 52.23(1). She observed that:
"This is one of what has become avery
large number of cases brought in the County Court that raise the issue of what duty (if any) is owed where a commission is paid to a garage which has arranged for its customer to enter into a finance agreement with a finance company. The number of cases is likely to increase given the publicity surrounding the possibility of making such claims, including on high profile money advice websites. The sheer
volume
of current cases is causing significant case management and trial management challenges within the County Court….
There is currently a lack of binding authority on the central issues that are raised in these cases; this includes the question of whether a duty is owed in "secret" or "half secret" commission cases and/or whether the Claimant can rely on sections 140A to 140C of [the 1974 Act] …
I have become aware that there have been differingviews
at first instance and there are some appeal decisions at County Court level that have largely but not wholly agreed with the decision of the Deputy District Judge in the present case.
Clarity is required from the Court of Appeal and given the large number of cases currently in the court system (and the potential for yet more to come) the current appeal raises an important point of principle ..."
2024
Birss LJ accepted the transfer up and gave directions that the appeal in Hopcraft be expedited and listed together with the appeals in
Johnson
and Wrench. He acknowledged that a large number of cases of this type were coming through the County Court and that an authoritative ruling on the issues was required. We heard the appeals over three days in the first week of July
2024.
We are grateful to all counsel involved for their clear and attractive presentation of the rival submissions both in writing and orally.
Our decision in summary
Johnson
as similar to that in Hurstanger, where there was sufficient disclosure to negate secrecy, but insufficient disclosure to procure the consumer's fully informed consent to the payment. We find that the lenders in
Johnson
are liable as accessories for procuring the brokers' breach of fiduciary duty by making the commission payment to them in the circumstances in which they did.
Johnson's
claim under the 1974 Act succeeds.
THE ISSUES
(1) Does a statement in the terms and conditions of the credit agreement that commission may or will be paid have the effect of negating secrecy, even where the borrower has neither read the statement nor been directed to read it?
(2) For the purposes of establishing an accessory liability on the part of the payer of commission in a partial disclosure case, is it necessary for the broker to have owed a fiduciary duty to the claimant, or does the "disinterested duty" suffice?
(3) If there is a fiduciary duty in a partial disclosure case, what are the necessary requirements to establish accessory liability on the part of the lender?
(4) Did the broker owe the relevant duty to the claimants in these cases?
(5) Is the lender liable for the repayment of the commission?
Johnson
appeal, namely:
(1) Was the relationship between Mr
Johnson
and
FirstRand
unfair for the purposes of sections 140A-C of the 1974 Act ?
(2) Was the judge wrong to remit the claim under the 1974 Act to the deputy district judge for further fact-findings?
(3) If the answer to both of these questions is "yes", should this court assess the appropriate remedy or should the case be remitted for a determination of that question in the County Court?
THE FACTS
Hopcraft
vulnerable
in some aspects," assumed that Jordans would get her the best deal.
Wrench
FirstRand
which were arranged through different dealers, Fast Lane Motor Cars
Ltd
("Fast Lane") and TT Sports and Prestige
Ltd
("TT"). The first agreement, relating to a used Audi TT coupe, was signed on 23 May 2015 and the second, relating to a used BMW 3 Series, on 11 March 2017. On each occasion the sales representative told Mr Wrench that the dealership would get him the best rate from their panel of lenders. Mr Wrench had not looked online or sought finance from any providers prior to going to the dealers.
vendor's
invoice and warranty, a one-page document entitled "Pre-contractual explanations for a Hire Purchase Agreement and a Fixed Sum Loan Agreement regulated by the Consumer Credit Act 1974," which he signed, a "Pre-Contract Credit Information" document containing the information required by section 55 of that Act, the Hire Purchase Agreement, consisting of three pages, and some standard terms and conditions, which are three further pages of
very
small print. Mr Wrench signed the Agreement, but he did not sign the standard terms and conditions.
"A commission may be payable by us to the broker who introduced this transaction to us. The amount is available from the Broker on request."
The expression "Broker" is not a defined term and the capital letter is possibly a typographical error.
FirstRand
to the dealer thanked them for placing the enclosed agreement with
FirstRand
and told them that in order to ensure that the agreement was processed as quickly as possible they should arrange for the completion of the enclosed forms. This included obtaining the customer's signature "to confirm the oral disclosure of an adequate explanation has been given" [sic]. There was no specific direction to the dealer to draw the attention of the customer to Clause 10 of the standard terms, let alone any aspect of Clause 12.
FirstRand
must have appreciated this. It is therefore unsurprising that Mr Wrench (a) did not read them and (b) had no idea that the dealer was receiving a commission.
FirstRand
was unable to find a copy of its agreement with Fast Lane but their witness, Scott Wood, said that it appeared from
FirstRand's
records that the commission was 3% of the amount borrowed (£179.85), and the DDJ accepted that evidence.
FirstRand
did manage to find a copy of the agreement it had with TT. It incorporated
FirstRand's
"Dealer Terms of Business" which by Clause 5.1 provided for payment of commission "on such dates, at such rates and in such amounts as are agreed between the parties from time to time." Mr Wood's evidence was that the agreement with Fast Lane would also have incorporated these terms. The Dealer Terms of Business provided by Clause 2.1 as follows:
"The Dealer shall introduce Applicants to [FirstRand]
by submitting Proposals to [
FirstRand]
using the online system or by using the Self-Serve model within the online system, or by fax or by any other agreed means (solely at the discretion of [
FirstRand].
The Dealer agrees not to refer any Applicant to any party other than [
FirstRand]
unless the Dealer has first submitted a Proposal in relation to the Applicant to [
FirstRand]
and [
FirstRand]
has declined to accept such Proposal.
The Dealer shall use reasonable endeavours to introduce Applicants to [FirstRand]
in line with the rates and terms agreed from time to time…"
FirstRand
between a range of 3.25% and 8.25%. TT would receive as commission 80% of the difference in charge between the lowest rate and the agreement rate. In addition, it would receive a commission of 1.25% of the total advance. In Mr Wrench's case, TT received commission of £408.98, of which £299.60 comprised DIC commission (80% of the difference between 3.25% and 4.32%.)
Johnson,
then aged 27 and a factory supervisor, had just passed his driving test and wished to purchase his first car. Before approaching any dealer he obtained a finance quote online. He then went to a dealer in Cardiff, the Trade Centre Group Plc, trading as the "Trade Centre Wales", because they advertised at the factory where he worked and had a reputation for being quite cheap. He was shown a number of cars, and eventually found a Suzuki, which he took for a test drive and decided he wished to buy. However on discussion with the Trade Centre sales representatives, Mr
Johnson
discovered that the finance he had been offered online was insufficient to enable him to purchase that car. He was unable to find an offer of alternative finance of the larger amount he needed on equivalent or similar terms to the original offer.
Johnson
paid the dealer a non-refundable deposit of £100 which had the effect of reserving the car at that price for 3 days. He then filled in and signed a "Finance Proposal Form" which the dealer used to obtain an offer from
FirstRand.
Mr
Johnson's
annual net income, as shown in the finance proposal form, was £13,200. The offer was for the balance of £6,399 at a flat rate of 8% repayable over five years. The APR was 18.1% on a hire-purchase element of £4803.69 and 15.1% on an associated personal loan of £1595.31. The deal was structured in this way because
FirstRand
would only offer hire-purchase of up to 100% of the Glass's Guide retail price for the car, which was £4803.69. The price at which the dealer was selling the car was therefore nearly £1,600 more than the guideline retail
value.
Mr
Johnson
was oblivious to this. Back in 2017 (unlike the situation today, when the information is readily available online, e.g. on comparative websites) it was quite difficult for a consumer to find out the Glass's Guide price for a second-hand car. The combined monthly instalment payment of £153.72 was higher than the amount in the first quote for finance Mr
Johnson
had independently obtained. Nevertheless, he took the deal.
Johnson
was presented with what he described as "an enormous amount of paperwork" and asked to sign the agreement then and there. He did not read through the documents. He trusted the sales representative to be telling him all he needed to know. He was unaware that the dealer would be paid a commission. Mr
Johnson's
witness statement says:
"22. At no point during the process was anything to do with commission mentioned, nor do I recall seeing anything about commission in the paperwork, although I did not get much chance to read it.
23. I have since been advised by my solicitors that MotoNovo made a commission payment to The Trade Centre in the sum of £1,650.95.
24. I understand that this represents almost 70% of the cost of credit of this agreement.
25. I also understand that at the time this statement was prepared MotoNovo have so far declined to confirm the basis on which the commission payment was calculated.
26. I had absolutely no idea that commission was commonly paid in this industry and wasvery
surprised to learn exactly how much commission was paid under my agreement.
27. I understood that I paid interest as part of the agreement and assumed that all of the charges under the agreement were that interest.
28. I had always thought that car dealerships made their money by making a profit on the cars that they sell rather than by arranging finance.
29. If I had been told that the overwhelming majority of the cost of this agreement to me was just a commission payment to the dealer, I simply would have walked away and gone to a different dealership."
FirstRand
called no evidence to prove that Mr
Johnson
was actually made aware of the commission which would be paid to the dealer by the lender. It relied on its documents, including its contract with the dealer. The Trade Centre Wales had an agreement with
FirstRand
entitled the "Rates and Terms". It incorporated the Dealer Terms of Business which were in materially identical terms to those in the Wrench case and, by clause 2.1 (set out at [39] above) obliged the dealer to give
FirstRand
a right of first refusal in respect of finance provided to its customers and to use reasonable endeavours to introduce its customers to
FirstRand
in line with the terms and rates agreed with
FirstRand.
"1.13 Suitability
You must take reasonable steps to ensure that the customer selects a product that is suitable for their needs. You must provide the customer with balanced information about the range of finance products that are available to enable the customer to make an informed choice as to which product is right for the customer. We will supply you with supporting tools and material to help you explain our products to your customers. You will receive a documentation pack for each customer accepted by us, which will include the Pre-Contract Information (SECCI), a customer agreement to read and take away with them, the original customer agreement to be signed and the Customer terms & conditions. When selecting the most appropriate credit agreement for your customers, you will consider the customer needs and the special contract terms within the MotoNovo credit agreements. This could include the mileage clauses on early termination and full term under the HP and PCP products, use of thevehicle
should the customer be considering taking the
vehicle
out of the UK and the motor insurance clause for fully comprehensive motor insurance for
vehicles
(motorcycles may hold third party fire & theft motor insurance).
1.14 Affordability
You must help us to gather the information that we required from the customer to undertake an affordability assessment. Where you are personally gathering the data from the customer, you must ensure that the information recorded is as provided by the customer and that all fields are populated. Where the information is being populated by the customer, you must help the customer to understand the questions that are being asked if required by the customer to do so.
1.15 Commission Disclosure
You agree to disclose to the customer early in the sales process in relation to each regulated finance agreement that commission may be payable to you for acting as a credit broker and/or credit intermediary. If requested to do so by the customer you will inform the customer of the amount of any commission and or other benefits payable by us to you in relation to the prospective or actual regulated." [sic]
Johnson
included the
vendor's
invoice and warranty, the "Pre-Contract Credit Information" which contained the information required by section 55 of the 1974 Act, an explanatory document, and a copy of the Hire-Purchase Agreement and Terms and Conditions (which were in substantially the same form as the Hire-Purchase Agreement and standard terms and conditions used in the 2017 transaction with Mr Wrench). The only mention of the commission in these documents was in clause 13.6 of
FirstRand's
standard terms and conditions (set out at [34] above).
Johnson
also included a "Suitability Document … Proposed for Mr Marcus
Johnson"
which he also signed without reading. It was created on a form used by the dealer. It contained the following statements:
"The Trade Centre WalesLtd
– Cardiff North Outlet is authorised and regulated by the Financial Conduct Authority (FCA) … and is permitted to advise on and arrange consumer credit contracts
Categories
C. Credit Brokerage …
…
We will undertake an assessment of your Demands and Needs for Consumer Finance and provide an illustration of the Consumer Finance product that best suits your individual requirements based upon the answers you provide.
We do not charge a fee for handling your application for Consumer Credit, but we may receive a commission from the product provider.
We do not offer a whole of market option for Consumer Credit; we offer products from a select panel of lenders, details of which can be seen below… (there follows a list of 22 lenders includingFirstRand).
Consumer Finance Demands and Needs Assessment
The following pages provide a record of the responses given by you during the assessment of your Demands and Needs for Consumer Finance. The answers provided have been used to generate the following illustration of the Consumer Finance product that best meets your individual requirements.
Suitability
Given your requirements and responses to specific questions the Finance option which appears to be most suited to your requirements is
Hire Purchase/Conditional Sale
Which Finance Company has been selected to provide funds…
FirstRand
![]()
Bank
Limited.
….
Within our organisation there are a number of finance options we are able to provide. Based on our discussions and your responses to our questions we will have narrowed down this selection to the one that may be most appropriate given your personal circumstances and requirements. We do however believe that it is important that in making the decision you are aware of all finance options we have available (some of which may not be applicable in your particular circumstances) and have relevant information on the options available.
Further information on the types of finance options we are able to offer can be obtained from organisations such as the Finance and Leasing Association www.F.A.org.uk or the Money Advice Service www.moneyadviceservice.org.uk."
FirstRand
first refusal in every case. The misleading nature of the Suitability Document is a matter which is of some significance when we come to consider the claim by Mr
Johnson
under the 1974 Act.
Johnson's
case, interest was charged at a flat rate of 8%, so the rate of commission was based solely on the amount of the loan. Nevertheless, the total amount of the commission was £1,650, approximately 25% of the total sum advanced by
FirstRand
to Mr
Johnson.
This was financed by the interest paid by Mr
Johnson.
Johnson
appears to have come to regret his somewhat hasty decision to enter into the transaction, and was never really happy with the
vehicle.
When he came into some money, Mr
Johnson
paid off the finance and sold the car in January 2021.
THE LAW
"…bribery is an actionable wrong at common law, as well as in equity, for which common law remedies as well as equitable remedies are available. The remedies include rescission of the transaction in connection with which the bribe or secret commission was paid. The payer of the bribe is rightlyviewed
not as an accessory but as a primary wrongdoer."
victim
of the act of bribery (or breach of fiduciary duty caused by receipt of the secret commission). That was no accident, because David Richards LJ's purpose was to explain his rejection of the contention before him that "the liability of the third party depends on the third party being an accessory to the agent's conflict and breach of fiduciary duty."
v
Bristol Aeroplane Co
Ltd.
[1944] KB 718 are satisfied in this case, and so we are bound by Wood. In any event, Wood appears to us to be an example of the orthodox application of settled principles pertaining to bribes and secret commissions.
void
or
voidable
owing to the £240 fee. At first instance the issue was approached on the basis that the defendants' right to rescission turned on the purely factual question whether the £240 commission was secret or not. The recorder held it was not secret owing to the statement in the signed document mentioned above.
vulnerable
and unsophisticated and in this context a statement of the amount their broker is to receive is likely to be necessary to bring home to such borrowers the conflict of interest.
v
Malaysia Govt Officers Housing Cooperative Society [1979] AC 374, 383 and Panama and South Pacific Telegraph Co
v
India Rubber, Gutta Percha and Telegraph Works Co (1875) LR 10 Ch App 515, at 527, 532-533). At [39] the judgment also identifies the well-known observation of Chitty LJ in Shipway
v
Broadwood [1899] 1 QB 369, at 373 that "the real evil of bribery is not the payment of money, but the secrecy attending it."
"Logically I can see no objection to this. Where there has only been partial or inadequate disclosure but it is sufficient to negate secrecy, it would be unfair tovisit
the agent and any third party involved with a finding of fraud and the other consequences to which I have referred, or, conversely, to acquit them altogether for their involvement in what would still be breach of fiduciary duty unless informed consent had been obtained."
v
Norton Finance UK
Ltd
[2015]
EWCA
Civ
186, [2015] 1 All ER (Comm) 1026 ("McWilliam"); Nelmes
v
NRAM [2016]
EWCA
Civ
491, [2016] CTLC 106 ("Nelmes"); Medsted Associates
Ltd
v
Canaccord Genuity Wealth (International)
Ltd
[2019]
EWCA
Civ
83, [2019] 1 WLR 4481("Medsted"); and Prince Arthur Ikpechukwu Eze
v
Conway [2019]
EWCA
Civ
88 ("Prince Eze").
vulnerable
in that they had substantial debt and needed assistance in finding a loan which would ease the burden of servicing that debt. Therefore the relationship was a fiduciary one. Indeed Tomlinson LJ described the case at [43] as a "paradigm instance of a relationship of that description."
various
ways in which such a commission might be calculated. But the borrowers were not told how much the brokers would actually receive. The Court of Appeal held that because of this, they did not give their fully informed consent. That was enough to give rise to an obligation on the part of Norton to account for the commissions; since Norton had become insolvent, the claimants indicated that they intended to seek compensation from the Financial Services Compensation Scheme.
viewed
it at [84].
v
Pengelly ("Pengelly")) in which the question was whether a borrower is entitled to rescission of a secured loan agreement and its accompanying mortgage, arranged through a broker, where the broker has received an undisclosed commission from the lender. In both cases rescission had been ordered (subject to counter-restitution). In Wood itself the trial judge had held that in a case about an undisclosed commission – i.e. a bribe for the purposes of
civil
law - a fiduciary relationship between broker and borrower was not required for relief. The trial judge held that all that was required was, in summary, in a situation in which A is dealing with B, a payment by A to B's agent C when A knows that that C is acting as B's agent and when A fails to disclose to B that he has made that payment. The judge contrasted this with Hurstanger in which the partial disclosure means that the payment is not in law a bribe but, where there is a fiduciary relationship, equitable remedies are available if the disclosure is insufficient for informed consent.
virtually
deprive it of content in order to grant relief in appropriate cases (see [43] to [47]).
"48. To ask in cases of this kind whether there is a fiduciary relationship as a pre-condition forcivil
liability in respect of bribery or secret commissions is, in my judgment, an unnecessarily elaborate, and perhaps inaccurate, question. The question, I consider, is the altogether simpler one of whether the payee was under a duty to provide information, advice or recommendation on an impartial or disinterested basis. If the payee was under such a duty, the payment of bribes or secret commissions exposes the payer and the payee to the applicable
civil
remedies. No further enquiry as to the legal nature of their relationship is required.
49 This is not to say that, in the many cases in which a fiduciary relationship clearly exists, the remedies available cannot be analysed in terms of the consequences of a breach of fiduciary duty. If a fiduciary relationship exists, it is a breach of that duty for the fiduciary to accept a secret commission or the offer of a secret commission, and in such a case the payer or offeror will be procuring or assisting a breach of fiduciary duty. Both will be liable to a range of remedies: accounts of profits, compensation for loss and rescission of transactions."
Therefore a fiduciary duty was not a precondition. What was required for liability was that the person receiving the payment was under a disinterested duty (as defined in [9] above).
"while it may sometimes be appropriate to describe a duty to give disinterested advice or information as "fiduciary", it is not necessary to do so. It is the content of the duty, not the label attached to it, that matters."
He then conducted a thorough review of the relevant authorities (from [53] to [92]) in order to demonstrate that these conclusions were consistent with them, albeit that a number of the cases use the term "fiduciary" to describe the relevant relationship. At [92] he concluded that in those authorities the suggested requirement for a fiduciary relationship was, in this type of case, no more than saying that the recipient of the bribe or secret commission must owe a disinterested duty. It is the duty to be honest and impartial that matters.
Johnson
and Wrench, when they held that where a situation arises of the type identified in Hurstanger as a "half-way house", a fiduciary duty is essential to found any liability on the part of the lender, and that any such liability will be as an accessory rather than as a primary wrongdoer, HH Judge Jarman KC and HH Judge Worster correctly identified the legal principles set out in Hurstanger which they, and we, are bound to apply in such a case. The question for us is whether they applied those principles correctly to the facts.
WHAT DUTIES WERE OWED BY THE BROKERS TO THE CONSUMERS?
Did the brokers owe a disinterested duty?
very
common situation, where the car dealer is acting both as a seller and as a credit broker and the consumer relies on him to obtain an offer of finance from a panel of lenders to which the dealer, but not the consumer, has access.
view
the procuring of the finance as an adjunct to the sale transaction, and would not expect the dealer to receive a commission from the lender for the introduction of the business, unless he tells them. Indeed, the claimants in these three cases believed that the dealers would make their money from the profit on the sales.
"effecting the introduction of an individual or relevant recipient of credit who wishes to enter into a consumer hire agreement to a person ("P") with aview
to P entering into by way of business as owner a regulated consumer hire agreement."
They also include presenting or offering an agreement which would (if entered into) be a regulated credit agreement; and assisting an individual or relevant recipient of credit by undertaking preparatory work with a
view
to that person entering into a regulated credit agreement.
very
nature of the duties which the credit broker undertook gave rise to a "disinterested duty" unless the broker made it clear to the consumer that they could not act impartially because they had a financial incentive to put forward an offer from a particular lender or lenders. The broker could do this, for example, by saying: "I may offer you a product which may be chosen because it benefits me directly, even though it may not be the best product for you. Are you happy with that?" Of course, in most cases the disclosure would be more subtle than that; but it must be sufficient to bring home to the customer the fact that the person he is engaging to find an offer of finance is free to promote his own self-interest at the customer's expense.
Johnson
at [53] referred to by HH Judge Jarman KC at [18], to the effect that Mr
Johnson
"did not rely on the dealer for information and did not care to enquire" do not negate the existence of the disinterested duty, which arises from the role undertaken by the dealer as credit broker in these particular circumstances. Those findings must also be put in context; the "information" to which the DDJ was referring, by reference to answers given by Mr
Johnson
to questions in the witness box (which he set out earlier in his judgment) was information about the deal: how much he was going to pay overall, the amount of each instalment, the amount of interest, and how long the agreement would run. It was not information about commission, nor about the closeness of the relationship between the dealer and
FirstRand.
Mr
Johnson
was not specifically told that the brokers could not act impartially, because (a) they were contractually obliged to introduce the business to
FirstRand
rather than to another lender on their panel and (b) they stood to earn commission from
FirstRand
if the deal went ahead. The impact of the disclosure that was made in his case is something that we will address in a later section of this judgment, at [120] to [122] below.
Did the brokers owe a fiduciary duty and if so, how far did it extend?
v
Mothew [1998] Ch 1 at p.18A-C and E-F, the observations of David Richards LJ in Wood at [36] to [37] and [110], and the judgment of Tomlinson LJ in McWilliam at [40] to [43].
vulnerable
than someone who might have had the choice to pay in cash. Mr
Johnson
had already obtained an offer of finance himself before approaching the dealer, but it transpired that the existing offer would not generate sufficient funds to enable him to afford the car he liked, and he was unable to find an offer of a larger loan on the same terms. All three claimants relied on the dealer to find them an offer which met their needs and which was, at the
very
least, competitive with other readily available sources of finance.
virtue
of s.56 of the 1974 Act, a credit broker is deemed to be the agent of the lender for certain purposes, including the purposes of negotiating the terms of the credit agreement and making any representations to the debtor or hirer. The respondents sought to use this as a justification for negating any agency relationship with or fiduciary duty to the borrowers. However, there is no reason in principle why the same person cannot act on behalf of one putative contracting party for certain purposes, and act on behalf of the other party for other purposes. The question is not whether the brokers owed fiduciary duties at large; it is whether they owed such duties in relation to the specific tasks they undertook on behalf of the claimants. In our judgment they clearly did. Indeed in this context, it went hand in hand with the disinterested duty. All the judges in the lower courts were wrong to find that the relationship was not a fiduciary one.
very
least, in Miss Hopcraft's case, competitive) and suitable terms. It was indistinguishable from the role of the brokers in McWilliam. As Mr Weir submitted, the service they provided was materially the same as that provided by other credit brokers of consumer finance. They communicated with lenders and entered into any necessary discussions or negotiations with them on behalf of the customers with a
view
to finding the most suitable lender from their panel of lenders to provide the finance which would enable the customers to purchase the cars they wanted at the prices the dealers were asking. The claimants had no direct contact with the lending panel or with the chosen lender. They entrusted the broker with information about their financial circumstances, and left it to them to pass that information on to prospective lenders and procure an offer.
Johnson,
the only case involving a written document setting out the services to be provided by the brokers, the Suitability Document, (see [46] above) the dealers expressly stated that they would:
"undertake an assessment of your Demands and Needs for Consumer Finance and provide an illustration of the Consumer Finance Product that best meets your individual requirements based on the answers you provide".
very
least, competitive. In Wrench, albeit that there was no specific mention of the lending panel, an express assurance that the dealer's representative would select or had selected the product most suitable for the borrower's needs was given orally on both occasions.
Johnson
transactions the brokers had obligations under CONC 4.5.3R to:
"disclose to a customer the existence of any commission when knowledge of the existence or amount of the commission could actually or potentially (1) affect the impartiality of a credit broker in recommending a particular lender or (2) have a material impact on the customer's transaction decision".
That duty is premised on credit brokers having a duty to be impartial in the first place.
"…even where an agent gives no advice or recommendation but instead simply proposes or arranges a particular contract, there is "at thevery
least an implied representation that the proposed contract was "competitive" (McWilliam, para 38; Medsted, paras 30 and 32) thereby resulting in the principal reposing trust and confidence in the agent and, accordingly, giving rise to a fiduciary relationship (Medsted, para 33)".
FirstRand
as lender, where the brokers were tied in to an arrangement to give
FirstRand
first refusal, and the only selection involved would have related to products offered by them, the brokers were even in a position to determine, or at least influence, the rate of interest charged and to adjust it in a manner which would affect the rate of commission they were to receive.
vulnerable
customers and there was a reasonable and understandable expectation that they would act in their best interests, that they owed them fiduciary duties. There was obviously reliance on them to act in good faith, just as there was in Hurstanger and McWilliam. Medsted is distinguishable on its facts because the borrowers in that case were financially sophisticated and, unlike any of the claimants, knew that commission was payable to the brokers by the financial institution to whom the brokers had introduced them, though they did not know how much. Even in Medsted, the relationship was held to have been a fiduciary one, see the discussion and conclusions on that issue at [32]: the difference was that the fiduciary duty did not extend to expressly informing the clients how much commission the broker would be paid. They could be expected to have asked, if they wished to know. Put another way, on the specific facts of Medsted there was sufficient disclosure for there to have been informed consent. In this case, as in Hurstanger, McWilliam, Wood and Pengelly, there was an obligation to tell the claimants the amount of the commission and there could be no informed consent if the claimants did not know how much it was. It was not good enough for the lenders to tell the claimants that the amount would be available from the brokers on request.
Johnson,
at [55] to [57]) they were wrong. The payment of a fee by the customer would make it even more obvious that the relationship was a fiduciary one, as it did in Hurstanger and McWilliam, but it is not an essential ingredient. In Wood a fiduciary duty arose in respect of the arranging of all three loans, including the second, in which the broker waived its fee from the client (see at [13]). In fact there is no requirement for there to be a contractual relationship between the customer and the fiduciary; see the discussion in Medsted at [29] to [32].
vehicle
and that therefore there was a clear conflict between the interests of the credit broker and the customer. It was in the broker's interest for the customer to obtain finance, regardless of whether it was in the customer's interests to do so, because the broker wished to sell the
vehicle
and to profit from doing so. The brokers were therefore acting in their own selfish interests in facilitating the sale by procuring the finance.
Johnson
case at [19] that:
"It is difficult to see how in practice or in principle a car dealer could offer single minded loyalty to a customer when dealing with the finance, but not when selling a car to the same customer which gives rise to the need for finance."
In Wrench HH Judge Worster made observations to a similar effect. We respectfully disagree. There is no reason why the absence of a fiduciary duty under a sale and purchase agreement should be an obstacle to the dealer/broker owing a fiduciary duty to the person on whose behalf they are arranging the necessary finance. The dealer is undertaking two independent commercial roles. In any event, if the offer of finance is accepted the dealer would sell the car to the lender, not the consumer. If and to the extent that HH Judge Jarman's objection depends on there being a sale "to the same customer" and therefore on the broker and consumer being on opposite sides of the sale transaction, the premise is erroneous.
FirstRand
raised the objection that Mr Wrench's pleaded case had been confined to alleged breaches of the disinterested duty and it was not pleaded that a fiduciary duty arose in respect of the procuring of the finance in either of the two transactions with which he was concerned. There had been no application for permission to amend the particulars of claim to cure this alleged deficiency.
view
the facts relied on in support of the existence of the disinterested duty, which in turn gave rise to the fiduciary duty, were sufficiently pleaded. There is no question of
FirstRand
being taken by surprise or suffering any prejudice, and the fiduciary duty issue arose squarely in
Johnson,
a case in which
FirstRand
was also the lender.
FirstRand
cannot claim to have been unaware of the case it had to meet on the existence of the fiduciary duty, and its counsel, Mr Matthew Hardwick KC and Mr Simon Popplewell, have addressed the legal arguments fully in writing and orally. In those circumstances we consider that Mr Wrench should not be precluded from raising the arguments that rely upon breach of a fiduciary duty, though for reasons which will become clear he does not need to rely upon them in order to succeed in his claim.
WERE THE COMMISSIONS IN WRENCH SUFFICIENTLY DISCLOSED TO NEGATE SECRECY?
"If you tell someone that something may happen, and it does, I do not think that the person you told can claim that what happened was a secret. The secret was out when he was told that it might happen."
That said, it seems to us that for the purpose of making disclosure that is necessary to obtain informed consent, there is a distinction between referring to the possibility that a commission may be paid (especially if the circumstances in which that might happen are not defined) and telling someone that it will be paid.
very
purpose of the document which the defendants were asked to sign was to show that they had given informed consent to the payment of the commission [42], even though it did not achieve that purpose because the amount of the commission was not stated. In those circumstances, the statement in the document the defendants signed was held to be enough to negate secrecy in that particular case.
Johnson's
case. On that basis we can appreciate why the concession was made that
Johnson
was a Hurstanger type case and not a Wood type case. That is not to say that we would have necessarily agreed with HHJ Jarman KC that that was the correct analysis, had the point remained open for argument in the
Johnson
appeal. However, since Mr Weir did not seek to withdraw the concession, and it was effectively common ground before us that
Johnson
was a case of partial disclosure, the point does not arise.
FirstRand
can have had no real expectation that they would do so; it did not even incorporate them expressly into the Hire-Purchase Agreement, but relied on the dealer to provide the customer with a copy. The only references in the Agreement to Terms and Conditions are to clauses which concern the liability of the lender (in Clause 10) and some obligations of the hirer which are irrelevant for these purposes (in Clauses 6 and 7).
FirstRand
appears to have gone out of its way to try and ensure that the statement about commission made at clause 12.6 (or 13.6 as it became) was as inconspicuous as it could be. It took no steps to require that the borrower did read it, let alone to obtain their confirmation that they had done so. The prominent reference to Clause 10 gave rise to the misleading implication that this was the only provision of any significance of which the customer needed to be made aware. By signing the agreement, Mr Wrench declared that his attention had been drawn to the provisions of that clause.
FirstRand
by professional brokers who were not car dealers. Whereas the Suitability Document in Mr
Johnson's
case specifically informed the reader that the dealer was acting as a credit broker, and was regulated as such by the FCA, there was nothing similar in Mr Wrench's case to put him on notice that the expression "broker" (with or without a capital letter) might be a reference to the dealer who was selling the car.
FirstRand
(including the tie which obliged the broker to offer it first refusal, and the DIC basis for the 2017 commission) and required to consent to the conflict of interest. The possibility of the payment of the commission to the dealer was buried in the small print, and it is difficult to reach the conclusion that this was anything other than deliberate, bearing in mind the distraction of the specific reference to Clause 10. It was not meant to be known or seen.
"We may receive fees from lenders with whom we place mortgages. Before you take out a mortgage, we will tell you the amount of the fee in writing. If the fee is less than £250, we will confirm that we will receive up to this amount. If the fee is £250 or more, we will tell you the exact amount."
view
that in Mr Wrench's case there was no "disclosure" in any meaningful sense and that the provision buried in the small print of
FirstRand's
standard terms was not enough to negate secrecy. Lenders should not assume that they can escape primary liability for the payment of a secret commission merely by making a general reference to the possibility of such payment in a carefully concealed sub-clause of their standard terms, especially when there is an attempt to divert attention from it in the manner which occurred here. In our judgment, Wrench, like Hopcraft and Wood, was a fully secret case.
FirstRand
was therefore under a primary liability to Mr Wrench as the payer of a secret commission.
IF THERE WAS PARTIAL DISCLOSURE SUFFICIENT TO NEGATE SECRECY, WAS THERE FULLY INFORMED CONSENT?
Johnson
that potentially created a distinction between that case and the others was the Suitability Document. In the
Johnson
case, as in Hurstanger, the possibility that the dealer might receive a commission from
FirstRand
was accepted to have been sufficiently drawn to the attention of the claimant to negate secrecy. However, like the borrowers in Hurstanger and McWilliam, and like Miss Hopcraft and Mr Wrench, Mr
Johnson
was relatively financially unsophisticated. In order for there to have been fully informed consent, Mr
Johnson
would have to have been told all material facts that might have affected his decision to enter into the hire-purchase agreement with
FirstRand.
The relevant principle was adumbrated in this way in Hurstanger at [34]:
"the broker could only have acted in this way if the defendants had consented to his doing so "with full knowledge of all the material circumstances and of the nature and the extent of [his] interest.""
The question whether those matters would in fact have affected his decision is immaterial, though Mr
Johnson's
evidence was that it would.
Johnson
that commission would (as opposed to might) be paid to the dealer for introducing the business, let alone revealed the highly significant fact that it was payable under an agreement between
FirstRand
and the dealer which obliged the latter to give
FirstRand
first refusal. He was not told how much the commission would be, nor how it was to be calculated. He was unaware that a significant proportion of the inflated price he was paying for the car would be used to finance the payment of the commission. As in Hurstanger, Mr
Johnson
was not told about the commission in terms which made it clear that he was being asked to consent to its being paid, and there was no warning statement to the effect that its payment to the broker might mean that the broker had not been in a position to give unbiased advice (see Hurstanger at [44]). On the contrary, the broker went to some lengths to conceal the true position from him. Had Mr
Johnson
read the Suitability Document he would have been deceived into thinking that he was getting impartial advice from the broker and that
FirstRand
had been chosen by them as the most suitable lender from a panel, which would only have served to reinforce the impression that he had already been given.
Johnson
did not give his fully informed consent to payment of the commission, and if and to the extent that any of the observations in the DDJ's judgment in his case can be interpreted as a finding that he did, that finding was plainly wrong.
Johnson
did. The material facts that were not disclosed to Mr Wrench included the rate of the commission, the basis on which it was calculated, the "tie" between the dealer/broker and
FirstRand,
including the obligation to give
FirstRand
first refusal, and that in the 2017 transaction, at least, the commission was partly based on a DIC arrangement.
ACCESSORY LIABILITY OF THE LENDER IN
JOHNSON
v
FIRSTRAND
Johnson,
which was conceded to be a case of partial disclosure for the purposes of the non-statutory claim, any liability of
FirstRand
would arise in equity as an accessory to the broker's breach of fiduciary duty. That was clearly established in Hurstanger (though in his oral submissions, Mr Weir reserved the right to argue, should this matter go further, that the lender is under a primary liability even in a partial disclosure case). Unfortunately, none of the parties addressed the issue of what was needed to found such accessory liability in their skeleton arguments, and the oral arguments did not engage in any depth with the requirements as to the lender's state of mind or knowledge. No findings were made by the DDJ or HH Judge Jarman KC about
FirstRand's
state of mind because they found, wrongly, that there was no fiduciary duty. However, there is no need to remit this case to the DDJ for any further fact-findings. On the facts as found, there was the clearest possible breach of fiduciary duty because the payment was made in circumstances in which the broker (and the lender) could not establish that Mr
Johnson
gave his fully informed consent to it.
Johnson
(and the fallback position in Wrench if we had found that there was partial disclosure) Mr Weir accepted that in order for there to be an accessory liability in equity for assisting in a breach of fiduciary duty, the lender must act dishonestly, in the sense explained in Twinsectra
Ltd
v
Yardley and others [2002] UKHL 12, [2002] 2 AC 164 ("Twinsectra").
FirstRand
and the Trade Centre Wales, which we have set out at [44] above. However, dishonesty, in this context, means knowing about, or deliberately turning a blind eye to, the breach of the broker's fiduciary duty to their principal. Once it is aware that the dealer is acting as credit broker for the consumer, the lender knows that the broker cannot receive payment of a commission or fee from the lender unless there has been full disclosure and the consumer/borrower has consented. The lender cannot assume that there has been full disclosure of the commission simply because the lender (or even the regulator) requires the broker to make such disclosure. If the lender does not take it upon itself to give full disclosure to the consumer, it deliberately takes the risk that the broker will not do so, and that is what happened in these cases. That risk was obvious: the brokers plainly had a motive for keeping quiet about the amount of commission, or how it was calculated, particularly if a DIC model was used.
FirstRand,
as it falls a long way short of requiring full disclosure of all material facts (and, indeed, implies that it would be proper for the broker to withhold information about the amount of the commission unless and until the customer makes a specific request). If anything, that provision demonstrates that
FirstRand
was actively encouraging the broker not to make full disclosure, and therefore that it neither wanted nor expected full disclosure to be made. In particular, the Dealer Terms do not require disclosure of the tie between
FirstRand
and the dealer and this renders
FirstRand
complicit in the concealment of that highly material fact. That is enough, in our judgment, to meet the requirements of Twinsectra.
FirstRand
cannot gain any comfort from clause 1.13 of the Rates and Terms either. That provision, entitled "Suitability", which we have also quoted at [44] above, is ambiguous and potentially misleading. At first sight, the first two sentences appear to oblige the broker to select the most suitable product from any lender. But it would be impossible for the broker to comply with such an obligation without breaching its obligations under clause 2.1 of the Dealer Terms to give
FirstRand
first refusal. If, on the other hand, the clause obliges the dealer/broker to select the most suitable product from the range offered by
FirstRand
itself, it serves to reinforce the tie which is being kept secret from the consumer.
v
Ahmed and another [
2024]
UKSC 17; [
2024]
2 WLR 1297, in which Lord Leggatt JSC (with whom Lord Lloyd-Jones, Lord Kitchin, Lord Stephens and Lord Richards JJSC agreed) held at [135] that at common law, a person who knowingly procures another person to commit an actionable wrong will be jointly liable with that person for the wrong committed, and that liability will be an accessory liability. It is enough to establish liability in this context to prove that the person who procures the wrongful act knows, or deliberately turns a blind eye to, the essential facts which make the act unlawful. Although this conclusion specifically addressed the position at common law, Lord Leggatt had already recognised the same concept in equity at [96] to [98] when discussing Twinsectra and the earlier decision of the Privy Council in Royal Brunei Airlines Sdn Bhd
v
Tan [1995] 2 AC 378.
FirstRand's
case it also knew that because of Clause 2.1 of the Dealer Terms of Business (see [39] above and [155] below) there was a contractual tie which obliged the dealer to approach it in priority to any of its competitors on the lending panel to make an offer, irrespective of whether that was competitive or the most suitable or the best offer they could obtain. That gave rise to a separate and additional conflict of interest. Quite apart from the requirement to disclose only the bare minimum of information about the commission payment, there is nothing in the Dealer Terms of Business which requires the dealer to tell the consumer about those other matters. Even on the assumption that
FirstRand
did not know about the "Suitability Document" and the lies it contained, it was effectively turning a blind eye to the dealer painting an entirely misleading picture of its role to the consumer simply by appearing to act as an ordinary credit broker. Most people would regard that as dishonest.
FirstRand
knew that payment of a commission to the Trade Centre Wales would put the dealer in breach of fiduciary duty unless Mr
Johnson
had given his informed consent to the payment. It made the payment in that knowledge. There was in fact no informed consent and there was nothing to suggest to
FirstRand
that informed consent had been given.
Johnson
to be for the purposes of this issue, the fact that there is no informed consent follows automatically from the finding that there was only partial disclosure, and on that analysis, the lender must be liable as an accessory for procuring the breach of duty. This appears to be consistent with the decision in Hurstanger. Just in case this is wrong, however, and it is incumbent on the claimant to prove that the lender knew or turned a blind eye to the fact that the borrower's informed consent had not been obtained, we will consider the state of
FirstRand's
knowledge concerning the extent of any disclosure.
FirstRand
had the means of telling the prospective borrowers with whom it was about to contract that it was going to make a payment to their fiduciary for introducing that business to it, how much that payment would be and how it would be calculated, but it failed to do so. Indeed, as we have already noted, it appeared to go to great lengths to ensure that Mr
Johnson
would not become aware of the commission by looking through the package of documents which it provided to the dealer to give him. There was no reference to the commission on any document he was asked to sign. He was not asked for confirmation that he had been told about the commission or that he had read clause 13.6.
FirstRand
could not have expected Mr
Johnson
to read the standard terms and conditions. The prospect that he would do so was negligible.
FirstRand
made no attempt to ensure that they were even incorporated in the Hire Purchase Agreement. It buried Clause 13.6 in the "General" section whilst deliberately drawing attention to Clause 10 on the face of the page of the Hire Purchase Agreement where the consumer was required to make certain declarations before signing. In any event, Clause 13.6 was insufficient to negate secrecy even in the highly unlikely scenario that the consumer would read it.
FirstRand
knew that Mr
Johnson's
informed consent had not been obtained by
FirstRand
itself, though it would have been easy enough for it to have done so. It also took no steps whatsoever to satisfy itself that the broker/dealer had obtained fully informed consent. It left it to the dealer to make disclosure in circumstances where Clause 1.15 of its own agreement with the dealer indicated that
FirstRand
did not expect the dealer to tell the consumer how much the commission was, or how it was calculated, unless that information was specifically requested. There was no requirement at all to tell the consumer about the tie in Clause 2.1 of the Dealer Terms of Business.
FirstRand
must have appreciated, since it was obvious, that it was not in the dealer's interest to reveal how much it was being paid, or to tell Mr
Johnson
about the tie, given that once Mr
Johnson
appreciated the true facts, he would almost certainly have refused to go ahead with the deal.
FirstRand
made no inquiries of the Trade Centre Wales to find out what it had told Mr
Johnson
and it did not require them to certify that they had told him anything about the commission.
FirstRand
were on notice, and must have suspected that Mr
Johnson
had not given his fully informed consent to the payment. So far as they were aware, he had not done so. Were it necessary to find that
FirstRand
deliberately turned a blind eye to the fact that Mr
Johnson's
informed consent was not obtained by the broker, we do so, for the reasons set out above.
Johnson
is entitled to equitable compensation from
FirstRand
for its accessory liability and that the measure of that compensation is the amount of the commission, plus interest from the date on which it was paid. Given the length of time which has passed since the transaction was effected and the fact that Mr
Johnson
has long since sold the car, we consider that this is not an appropriate case in which to make an order for rescission of the Hire Purchase Agreement.
THE CONSUMER CREDIT ACT CLAIM:
JOHNSON
V
FIRSTRAND
ONLY
The relevant statutory provisions
"140A Unfair relationships between creditors and debtors
(1) The court may make an order under section 140B in connection with a credit agreement if it determines that the relationship between the creditor and the debtor arising out of the agreement (or the agreement taken with any related agreement) is unfair to the debtor because of one or more of the following—
(a) any of the terms of the agreement or of any related agreement;
(b) the way in which the creditor has exercised or enforced any of his rights under the agreement or any related agreement;
(c) any other thing done (or not done) by, or on behalf of, the creditor (either before or after the making of the agreement or any related agreement).
(2) In deciding whether to make a determination under this section the court shall have regard to all matters it thinks relevant (including matters relating to the creditor and matters relating to the debtor).
(3) For the purposes of this section the court shall (except to the extent that it is not appropriate to do so) treat anything done (or not done) by, or on behalf of, or in relation to, an associate or a former associate of the creditor as if done (or not done) by, or on behalf of, or in relation to, the creditor."
Johnson
contends that the relationship between him and
FirstRand
was unfair, because the relationship resulted in a hire purchase agreement and associated personal loan agreement being concluded when the commission agreement between
FirstRand
and the Trade Centre Wales had not been disclosed in a way which actually brought it to his attention, and explained its true significance. He contended that this was "a thing….not done…on behalf of [the lender]" by the broker which gave rise to an unfair relationship.
FirstRand
below that as a consequence of the personal loan he broker was to be treated as the agent for the lender for these purposes, because of section 56(1)(c) and (2) of the 1974 Act.
Johnson
contends that the court should therefore exercise its power under section 140B(1)(a) to:
"require the creditor, or any associate or former associate of his, to repay (in whole or in part) any sum paid by the debtor or by a surety byvirtue
of the agreement or any related agreement (whether paid to the creditor, the associate or the former associate or to any other person);"
He also relies on section 140B(9) which says:
"If in any such proceedings the debtor or a surety alleges that a relationship between the creditor and the debtor is unfair to the debtor, it is for the creditor to prove to the contrary."
The first instance judgment on this issue
FirstRand
would only pay the Glass's Guide price for the
vehicle
when entering into a hire purchase agreement, and this was £4,803.69. Mr
Johnson
agreed to pay an additional sum, financed by a personal loan, of £1,595.31. DDJ Sandercock said:
"Had he read the agreement or even given it little more than a cursory glance it would have been obvious to him that he was paying £1,595.31 more than the cash price for the car of £4,803.69. In effect, he was paying a third more for the car than it was worth. He must have accepted this, because he signed the "contract of sale" and the hire purchase agreement."
Johnson
and
FirstRand
was unfair for the purposes of s.140A of the 1974 Act by setting out a series of 10 factual propositions and concluding that "there was nothing unfair in the agreement or the surrounding circumstances which would cause the court to consider making an order under section 140B". The factual propositions were:
"a. I find that the claimant displayed an almost wilful disregard of the pre-contract information and the terms and conditions of the agreement. This is shown by the claimant's statements noted at Paragraphs 21 (l) and (m) above.
b. The claimant persisted in the mistaken assertion that the amount of commission was based on the interest payable under the agreement. I accept Mr Irving's evidence that the commission was based entirely on the amount of the capital of the loan.
c. It was submitted on the claimant's behalf that if the commission had been less the instalments would have been lower. There was no evidence to support this submission. I find that it was illogical in any event because the onlyvariable
in the arrangements between both claimant and defendant and defendant and TCW was the range of interest which the broker could have applied. Having applied the minimum rate available the claimant could not have paid any less.
d. The claimant's instalments would have been the same regardless of the amount of commission or if no commission was payable at all.
e. The claimant is not entitled to claim against the defendant if he has made a bad bargain over the price of the car. This is not an issue relating to the fairness of the credit agreement.
f. There was no evidence that the dealer/broker had caused the claimant to enter into an agreement for a higher sum of money than he needed. Had this applied it might have been an argument that the commission was inflated but this is not the case. It is not for the court to speculate about what might have happened in hypothetical circumstances.
g. The defendant had complied with CONC.
h. The claimant had made himself aware of interest rates and repayments and was content to enter into this agreement on its particular terms.
i. There is nothing in the agreement which is itself unfair.
j. The antecedent documents and clause 13.6 of the Terms and Conditions provided ample information and opportunity for the claimant to understand his position exactly but he chose not to read them."
FirstRand,
was required to comply with these rules. At the time when Mr
Johnson's
case was pleaded, it was understood by his lawyers that the lender had paid the broker a "discretionary interest commission or fixed fee commission". The breaches of CONC were therefore pleaded as failures to disclose this kind of commission. The Defence admitted the commission but did not reveal any of the terms of the agreement between the dealer and the lender which gave rise to it, except to say that the dealer did not have an unfettered discretion on the rate of interest.
i) The fact that the dealer was entitled to payment of a commission if the agreement was concluded. This entitlement arose out of an agreement between them which regulated their business.
ii) The agreement between the dealer and the lender required the dealer to offer all its business to the lender which had first refusal. No other lender was asked to quote for MrJohnson's
business and no "shopping around" the panel of lenders had occurred.
iii) The agreement guaranteed the dealer a commission which amounted to 25% of the total sum advanced.
The First Appeal
Johnson
of the commission. He had found that Mr
Johnson
had received the document containing clause 13.6, but he also found that he had not read it. He held that the CONC requirements did not apply because of the way the case was pleaded. But he did not make any factual finding about whether they were complied with if they did apply.
Johnson
that the judge should not have remitted the case, but should have determined the issue himself in favour of Mr
Johnson
on the evidence available to him.
The Suitability Document and the Dealer Terms of Business
Johnson
case earlier in this judgment, we referred to the "Suitability Document…Proposed for Mr Marcus
Johnson"
which was prepared by the dealer, the Trade Centre Wales. Its material terms are set out at [46]. As we observed at [47], the document is untruthful in a number of important ways.
Johnson's
requirements. It was inadequate to fund the purchase because he was required to pay far more than the Glass's Guide price for the car. This transaction could only be achieved by an additional personal loan of £1,595.31. The proceeds of that loan were, in effect, required in order to pay the dealer the commission of £1,650.95. If that commission had not been payable, Mr
Johnson
would have been able to fund the purchase at the actual Glass's Guide price using the hire purchase agreement which the lender offered.
FirstRand
contained clause 2.1 (set out at [39] above) which tied the dealer in to giving it a right of first refusal. It is probably no coincidence that the Trade Centre Wales did not refer to clause 2.1 of these terms in the Suitability Document. It is notable that there is no contractual obligation in the "Rates and Terms" agreed between the dealer and the lender that the dealer was required to disclose this contractual tie between them. This is an omission of a key fact which is a suppression of the truth.
very
disadvantageous to Mr
Johnson
(who was paying far more than the car was worth, as the DDJ found on the facts), and
very
beneficial to the dealer. Mr
Johnson,
as the DDJ found and as the dealer must have known, did not read any of the documents and did not understand what a
very
poor deal he was getting. That might be his fault, but he is hardly alone in dealing with complex legal documentation in this way, and the Consumer Credit Act protection exists in part for this reason.
The law
v
Paragon Personal Finance Limited [2014] 1 WLR 4222, at [10], [17]-[20]. He begins his analysis with this, at [10]:
"Section 140A is deliberately framed in wide terms withvery
little in the way of guidance about the criteria for its application, such as is to be found in other provisions of the Act conferring discretionary powers on the courts. It is not possible to state a precise or universal test for its application, which must depend on the court's judgment of all the relevant facts. Some general points may, however, be made. First, what must be unfair is the relationship between the debtor and the creditor. In a case like the present one, where the terms themselves are not intrinsically unfair, this will often be because the relationship is so one-sided as substantially to limit the debtor's ability to choose. Secondly, although the court is concerned with hardship to the debtor, subsection 140A(2) envisages that matters relating to the creditor or the debtor may also be relevant. There may be features of the transaction which operate harshly against the debtor but it does not necessarily follow that the relationship is unfair. These features may be required in order to protect what the court regards as a legitimate interest of the creditor. Thirdly, the alleged unfairness must arise from one of the three categories of cause listed at sub-paragraphs (a) to (c). Fourthly, the great majority of relationships between commercial lenders and private borrowers are probably characterised by large differences of financial knowledge and expertise. It is an inherently unequal relationship. But it cannot have been Parliament's intention that the generality of such relationships should be liable to be reopened for that reason alone."
"I turn therefore to the question whether the non-disclosure of the commissions payable out of Mrs Plevin's PPI premium made her relationship with Paragon unfair. In my opinion, it did. A sufficiently extreme inequality of knowledge and understanding is a classic source of unfairness in any relationship between a creditor and a non-commercial debtor. It is a question of degree. Mrs Plevin must be taken to have known that some commission would be payable to intermediaries out of the premium before it reached the insurer. The fact was stated in the FISA borrowers' guide and, given that she was not paying LLP for their services, there was no other way that they could have been remunerated. But at some point commissions may become so large that the relationship cannot be regarded as fair if the customer is kept in ignorance."
"On that footing, I think it clear that the unfairness which arose from the non-disclosure of the amount of the commissions was the responsibility of Paragon. Paragon were the only party who must necessarily have known the size of both commissions. They could have disclosed them to Mrs Plevin. Given its significance for her decision, I consider that in the interests of fairness it would have been reasonable to expect them to do so. Had they done so this particular source of unfairness would have been removed because Mrs Plevin would then have been able to make a properly informed about thevalue
of the PPI policy. This is sufficiently demonstrated by her evidence that she would have questioned the commissions if she had known about them, even if the evidence does not establish what decision she would ultimately have made."
Discussion
Johnson
said that he thought the dealer would make its profit from the sale of the car. This means that he did not think about who was paying it for its credit broking service. He did not know that the advertised price which he agreed to pay was substantially more than the Glass's Guide retail price, and that the difference was largely accounted for by commission which the lender had to pay to the dealer under existing contractual arrangements. He did not know that the dealer was contractually bound to the lender to offer a substantially different service from that promised in the Suitability Document. In effect, the dealer was obliged to place the business with the lender, however uncompetitive that may be, and in return was entitled to a
very
large commission (relative to the size of the deal) which would be paid ultimately by Mr
Johnson.
Johnson
that the dealer was being paid by the lender for the credit broking service. If he had been told the amount of the commission (and either the lender or the dealer could have done this) he would have been able to question why it was so high. He may also have realised that the hire purchase agreement was inadequate to fund the "ticket price" of the car because that price was much higher than the Glass's Guide
value.
"[It was pleaded that] … Contrary to rule 2.3.2R the broker, i.e., the salesman as agent for the defendant failed to explain key features so as to provide the claimant with an informed choice by failing to explain the existence and/or amount of the Discretionary Interest Commission or Fixed Fee Commission. I find that this rule did not apply since neither of these types of commission were paid or agreed for."
In fact the rule did apply. The way in which the pleading said it had been breached was in error - because it was settled before the lender had given disclosure of what had happened. This, if it mattered, could easily have been corrected at trial.
"[It was pleaded that]… Contrary to rule 2.5.8 (13)R the broker allowed preference to be given to a particular credit product with the object of personal gain rather than in the best interest of the claimant. I find that there was no evidence of this."
"[It was pleaded that] …Contrary to rule 3.7.4G the broker failed to indicate to the customer in a prominent way the existence of any financial arrangements with a lender that might impact upon the firm's impartiality in promoting a credit product to a customer by failing to explain the existence and/or amount of the Discretionary Interest Commission or Fixed Fee Commission. I find that this rule did not apply since neither of these types of commission were paid or agreed for between the broker and the defendant."
FirstRand.
The dealer gave the customer the Suitability Document which actively concealed the reality. The dealer offered no service to Mr
Johnson
as a broker at all except to introduce him to one lender to whom it was tied by Clause 2.1 of the Dealer Terms of Business and from whom it took a lavish commission. The existence of the relationship between lender and dealer in this case was such as to require honest and accurate disclosure so that the customer could decide whether he wanted to buy a car with finance obtained through a dealer/credit broker who would conduct at least some review of what the credit market, or a panel of lenders within it, might offer him.
Johnson
about the commission arrangements. He did not remit that issue only, because he rightly held that the issue of fairness under the 1974 Act is to be considered in the light of all relevant matters, see section 140A(2).
Johnson's
evidence is that the payment of commission was not disclosed to him orally, and that he was not aware of it because he did not read the Suitability Document or the lender's Terms and Conditions. No evidence to the contrary was adduced. Any finding that Mr
Johnson
was actually aware of the commission arrangements would be unsustainable on the evidence. This conclusion is reinforced by the fact that he was dealing with a dealer who had supplied the false Suitability Document. Why, having done that, would the dealer then
volunteer
the truth?
Johnson
is entitled to protection under section 140A of the 1974 Act, as are we. We are quite satisfied that the relationship between the lender and Mr
Johnson
arising out of the agreement was unfair to Mr
Johnson
because of things done (or not done) by, or on behalf of, the lender,
FirstRand
(either before or after the making of the agreement or any related agreement). Fairness in this context is a matter of degree, and the fact that the commission to the broker was 25% of the sum advanced is a key fact, as is the fact that the sum borrowed and paid to the dealer was much more than the car was worth. The fact that this
very
bad bargain arose from a relationship between the broker and the lender which was falsified by the broker, and not disclosed by the lender, is also critical.
very
high in relation to the sum borrowed that may, in itself, be enough to make the relationship unfair where nothing, or nothing of substance, has been done to disclose the relationship between the lender and the broker. It is not necessary to develop this analysis further for the purposes of the appeal in
Johnson
because the commission was
very
high in that case, and the true nature of the relationship between the lender and the broker was not disclosed by the lender and actively concealed by the broker (acting as agent for the lender by
virtue
of section 56 of the 1974 Act). It is a
very
clear case.
very
straightforward and uncontradicted. The relevant discussions took place many years before the trial (as will often be the case) and it is inevitable that the primary focus will be on the documents, including those which were available to Mr
Johnson
at the time of the transaction and those which reveal the arrangements between the lender and the broker.
view
that the solution on that question also is clear. The commission of £1,650 should be repaid to Mr
Johnson
by the lender, together with the interest he paid on it under the hire purchase and personal loan agreements, and interest on the total of those two elements at an appropriate commercial rate from the date of the agreement, 29 July 2017. If the rate cannot be agreed we will consider written submissions about it.
CONCLUSION AND DISPOSAL
(1) Does a statement in the terms and conditions of the credit agreement that commission may or will be paid have the effect of negating secrecy, even where the borrower has neither read the statement nor been directed to read it?
Answer: not necessarily. The question whether the borrower has been told or informed about the commission will depend on the facts of each case, including the steps, if any, that are taken to bring the matter to his attention. Burying such a statement in the small print which the lender knows the borrower is highly unlikely to read will not suffice.
(2) For the purposes of establishing an accessory liability on the part of the payer of commission in a partial disclosure case, is it necessary for the broker to have owed a fiduciary duty to the claimant, or does the "disinterested duty" suffice?
Answer: a fiduciary duty is a necessary requirement but in a case such as this, a fiduciary duty arises in tandem with and in consequence of there being a disinterested duty.
(3) If there is a fiduciary duty in a partial disclosure case, what are the necessary requirements to establish accessory liability on the part of the lender?
Answer: knowledge of the existence of the fiduciary relationship and payment of the commission to the broker in circumstances in which the lender has not satisfied itself that the borrower has given their fully informed consent to the payment. Those circumstances will inevitably arise if the disclosure is partial, particularly if the lender has encouraged partial disclosure.
(4) Did the broker owe the relevant duty to the claimants in these cases?
Answer: yes. In all three cases there was a disinterested duty which was sufficient to give rise to a primary liability in the cases of Hopcraft and Wrench, which were secret commission cases. In all three cases there was also a parallel fiduciary duty which was sufficient to found the claim for accessory liability in theJohnson
case and would have been sufficient in Wrench had it been a partial disclosure case.
(5) Is the lender liable for the repayment of the commission?
Answer: yes.
Johnson
appeal:
(1) Was the relationship between MrJohnson
and
FirstRand
unfair for the purposes of sections 140A-C of the 1974 Act ?
Answer: yes.
(2) Was the judge wrong to remit the claim under the 1974 Act to the deputy district judge for further fact-findings?
Answer: yes.
(3) If the answer to both of these questions is yes, should this court assess the appropriate remedy or should the case be remitted for a determination of that question in the County Court?
Answer: this court had sufficient information to enable it to make the assessment and it would be contrary to the overriding objective to remit the case to the County Court as it would be a disproportionate use of court time and the parties would incur further costs unnecessarily in a case of relatively lowvalue.
We have directed that Mr
Johnson
be repaid the commission together with interest.
very
poorly served by the brokers and the lenders alike, and it would seem invidious that they should be left without a remedy just because of a reference to the possibility of a commission payment buried in a mass of contractual documents that no-one concerned expected them to read. We also understand the judicial reluctance (expressed in Hurstanger) to
visit
a principal liability for payment of a secret commission upon a lender who (in stark contrast with the lenders in these three cases) has gone to some lengths both to notify the borrowers of the payment of the commission and obtain their consent to it, but has not quite done enough.
FirstRand's
to have been).
virtually daily basis, but it may be that on some future occasion it will be felt desirable for the Hurstanger and Wood lines of authority to be considered in greater depth, and for a definitive pronouncement to be made by the Supreme Court about the circumstances in which the payment of a commission by a third party to another person's agent or fiduciary will give rise to a liability (whether as principal wrongdoer or an accessory) on the part of the payer.