The Court of Appeal’s decision in Johnson v FirstRand Bank Limited (London Branch) [2024] EWCA Civ 1282 came as a considerable surprise to the motor finance industry (and many other financial services industries). This short article considers the decision and what will happen next.

The facts

Each claim involved a consumer visiting a dealer, selecting a vehicle and wanting finance. This table sets out the key facts.

The Court of Appeal decided:

The context of the relationship between the dealer and the customer is “important”. The position may therefore be different where either (a) the dealer is not making a profit from the vehicle’s sale or (b) the customer is sophisticated.

The Court decided that the borrowers were owed a ‘disinterested duty’ because “it was part of the credit broker’s role to provide information to the lenders on the customer’s behalf, and to the customer about the available finance. The 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”.

The dealers also owed an “ad hoc fiduciary duty running in tandem with the disinterested duty, arising from the nature of the relationship, the tasks with which the brokers were entrusted, and the obligation of loyalty which is inherent in the disinterested duty”. The dealers were not carrying on a purely administrative role. Instead, the dealers “were in a position to take advantage of their vulnerable customers and there was a reasonable and understandable expectation that they would act in their best interests”, meaning they owed them fiduciary duties.

Some problems of the decision

This is the first time that the Court of Appeal had considered duties owed by dealers to their customers. Before then, the County Court regularly decided that dealers did not owe such duties. This was expected: no regulator had ever said that dealers were fiduciaries. In fact, the FCA’s own rules did not require any disclosure of the amount of commission and the basis of its calculation (which is what the Court thought was necessary in these appeals). The usual approach of regulation is to require firms to take additional steps.

What happens next?

Both lenders have made applications to the Supreme Court seeking permission to appeal. It is likely that a decision on permission will be made in early 2025. If permission is granted, there will be a hearing. But this is unlikely to happen before summer 2025 with a decision to follow.

In the meantime, the FCA is consulting on whether to extend the pause to motor finance commission complaints to commissions which were not discretionary (but it seems likely it will).

Many County Courts are already staying claims pending the Supreme Court’s decision. It seems there will be considerable focus on what happens at the Supreme Court which will hopefully reach a sensible place and restore order to the market.