Johnson v FirstRand Bank Ltd, Wrench v FirstRand Bank Ltd and Hopcraft v Close Brothers Ltd. – Day Three
The third day day of the Supreme Court hearing began with submissions by Johnson, Wrench and Hopcraft continuing from the day before.
Johnson, Wrench and Hopcraft’s tactics with regards the fiduciary duty immediately became clear as they tried to establish that motor dealers have undertaken a classic finance broker role in assessing a customer’s needs and recommending products that are appropriate.
The Court was initially taken to the original evidence in the case, including the demands and needs documents and contractual terms and conditions. These submissions were not all smooth sailing as the Court sought to probe the arguments through several interventions. One aspect the Court will return to is the initial disclosure documents, and that no fee is being paid by the customer and commission may be paid by the finance company.
Submissions then moved to an assessment of the caselaw, as well as the regulatory regime from the Hire Purchase Act 1964 to present day, in attempts to establish that a duty is owed by the motor dealer as a finance broker to the customer.
After this Johnson, Wrench and Hopcraft focused on the requirements for bribery. This is a significant part of the case as it enables a claim to be made directly to the finance companies for cancellation of the contract, and return of all monies and payment of the commission to their client. Again, there were a number of Court interventions in order to clarify Johnson, Wrench and Hopcraft’s case with regards the requirement for dishonesty and knowledge.
The afternoon session allowed Johnson, Wrench and Hopcraft to press this further before moving on to submissions regarding Plevin and an unfair relationship. Johnson, Wrench and Hopcroft were keen to draw a direct analogy between Plevin and the current case as well as to define the calculation of the commission by reference to the cost of the finance and not the finance agreement as a whole. They are more likely to be successful on this point, particularly as the FCA agrees with their position.
FCA Submissions
Another significant aspect of the hearing is the intervention by the FCA on behalf of consumers. Their submissions started around 3pm and, unlike the other parties to date, the FCA took a more nuanced approach. On the one hand they support the fact that motor dealers are not a fiduciary, but they do advocate for a duty to provide disinterested advice in order to protect consumers, as well as support for the application of Plevin to the current case, and particularly the calculation of the commission as a percentage of the cost of finance and not the full cost of the loan, in order to provide a clear framework for a redress scheme where appropriate.
Overall, the FCA’s position is more beneficial to the motor dealer than to Johnson, Wrench and Hopcraft as they provided expert guidance on the regulatory regime, and their interpretation and expectations of a motor dealer’s role and the nature of the tripartite relationship between the dealer, the customer and the finance provider.
The last word on the case was given to Close Brothers and FirstRand Bank who brought the case full circle. They again highlighted that for over 50 years it has been the case that motor dealers are acting in their own interest when selling a car, and that payment of commission by finance providers for arranging finance is a known and acknowledged part of business and neither parliament nor the FCA have banned this practice.
In Conclusion
After consideration of all three days, it is our opinion that this case could go either way. Whilst uncomfortable and extreme, Johnson, Wrench and Hopcraft’s interpretation of case law and its application to the motor dealer relationship is capable of resulting in a fiduciary relationship being applied. If this is the case, the only way a dealer could have received commissions fairly would have been through informed consent, likely requiring the existence and amount of any commission to be expressly disclosed.
That said, there are some significant difficulties with this approach, not least of which is that all the case law refers to a traditional finance broker role who is not providing any goods. This is a significant factor. After considering the representations and the Court’s approach throughout, we are cautiously optimistic that a fiduciary duty is unlikely.
Most dealers may however still face a duty to provide disinterested advice which would need to be justified on a case-by-case basis. In this scenario we would likely have an FCA redress scheme whereby disclosure of the existence of commission could be all that would be needed to defend against any wrongdoing.
The greatest potential for an upset remains in how the Supreme Court engages with Plevin and the potential for an unfair relationship under s140A.
Either way, as the court has indicated that a judgement may be handed down as early as July, watch this space and we will keep you informed.
As always, this report is general in nature, and that any opinions are an initial view of an ongoing case. This is therefore provided as a general guide only.
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