Commissions Update

Close on the heels of the Supreme Court accepting the appeal of Johnson, there are two further developments in this fast moving area of law

R. (Clydesdale Financial Services Ltd) v Financial Ombudsman Service Ltd

This is a second potentially significant commissions case in less than 2 months. We will be providing a more detailed assessment and advice in the new year. However, for now it should be noted that the potential impact of this case on commission claims may be greater than Johnson.

The Case of R. (Clydesdale Financial Services Ltd) v Financial Ombudsman Service Ltd [2024] EWHC 3237 involves a challenge by Clydesdale Financial Services (trading as Barclays Partner Finance) against a decision of the Financial Ombudsman Service (FOS) when considering and upholding a regulated complaint.

The customer, Ms. Lewis, purchased a used car through a conditional sale agreement brokered by Arnold Clark and financed by Clydesdale. Under the agreement, Arnold Clark received a discretionary commission tied to the interest rate charged to Ms. Lewis. Ms. Lewis subsequently complained to the finance company and to the FOS. The FOS found that the arrangement created a conflict of interest. Ms. Lewis was not adequately informed about the discretionary nature of the commission or its effect on the interest rate, and the FOS ruled that the relationship was unfair under Section 140A of the Consumer Credit Act 1974. The current hearing was an appeal of the FOS decision.

It is noted that this case has followed the reasoning used by the Court of Appeal in Johnson. Given the timing of the Judgment, it is highly likely that the High Court had access to the Johnson Judgment. In this regard the legal impact of the case is in line with the Court of Appeal and will be likely be superseded by the appeal to the Supreme Court.

The challenge of this case is the damage assessment. It was clear from the case that despite the discretion as to commission, the rate given to the customer was actually really good (it is likely she would not have received a better rate), despite this the Court not only awarded compensation for breach of contract, but also awarded compensation based on the difference between the rate offered and the lowest rate that could have been offered.

It is difficult to think of a worst case scenario with regards damage calculation. If allowed to stand, this will have a significant impact on the cost to business of such claims.

Financial Conduct Authority

As promised, the FCA today has confirmed that it will be extending its investigation into Non-DCA commission complaints until 04 December 2025.

This is not a surprise as the Court decision in Johnson will need to be digested in detail by the FCA.

As a result of this delay, the FCA have confirmed that consumers will now have until the later of either 15 months from a final response or 29 July 2026 to refer Non-DCA commission complaints to the FCA.

Members are advised :-

• to continue to maintain and preserve records regarding sales that could be relevant to any complaints about commission; and
• to continue to communicate with, and update, any complainants as appropriate.