Johnson v FirstRand Bank Ltd, Wrench v FirstRand Bank Ltd and Hopcraft v Close Brothers Ltd. – Day Two

The second day day of the Supreme Court hearing began with submissions by Close Brothers and FirstRand Bank regarding secret commissions and the case of Hurstanger. Close Brothers and FirstRand Bank sought to establish that different remedies should be considered where the dealer disclosed the existence of commission, but not the amount.

In reality this should be a minor issue for most motor dealers as standard FCA paperwork should include an initial disclosure document showing the potential existence of commission. Of course, the precise wording used will be important but Hurstanger is a case that we need to engage with and presents an excellent opportunity to clarify its effect.

This also naturally led to submissions regarding the case of Plevin and the concept of an unfair relationship under s140 of the Consumer Credit Act 1974.

Motor dealers may remember the case of Plevin in relation to PPI. In this case the court concluded that a failure to disclose excessive commission payments could itself be a breach of contract entitling a customer to compensation. Submissions by Close Brothers and FirstRand Bank sought to distinguish the case of commission that amounted to 70% of an optional product with commission for arranging finance.  It also allowed Close Brothers and FirstRand Bank to clarify the effect of commission on the price of the finance and the fact that removing commission paid to the dealer will not necessarily reduce the price to the customer by the amount of the commission. A prescient point as interventions by the Law Lords made it clear that this point had not been considered.

The most significant aspect of day two are the representations by the NFDA. To date the court has only heard arguments from the parties, each of which has their own interests to pursue. As an intervenor in the case, this is the first time the court has heard representations from motor dealers as to the nature of the sales process, arranging finance and the commercial realities of vehicle sales.

An important feature of the NFDA’s representation was the nature of the modern vehicle sales process. The Court of Appeal found that the duties of vehicle sales were separate from finance brokering, with a clear delineation where motor dealers moved from one to the other. The NFDA sought to establish that the relationship was more like a stick of rock, with both the vehicle sale and the finance running all the way through it and so inextricably linked. It was clear from the intervention from the Law Lords during the NFDA’s submissions that the information provided was novel, and that a greater understanding had been given as a result of submissions.

The NFDA continued the tactic from Close Brothers and FirstRand Bank in drawing the logical extensions of the fiduciary relationship into other everyday sales. As we saw during judicial interventions later in the day, this top-down approach to fiduciary relationships is likely to cause Johnson, Wrench and Hopcraft some difficulties.

Another aspect of the submissions was to put forward the premise that the Court of Appeal had gone too far in a novel and sweeping change by creating a fiduciary relationship between the motor dealer and the customer. A position that will be supported by the FCA in its submissions on day three.

Johnson, Wrench and Hopcraft

12.05pm saw the first submissions from Johnson, Wrench and Hopcraft. It was clear from the beginning that their focus in this case will be to relate the claim in bribery, and to resist all attempts to restrict the development of a tort of bribery. Significant portions of the remaining three hours of the day were given over to a detailed analysis of the case law in bringers over the last 150 years.

A weakness was that the submissions on bribery only relate to Close Brothers and FirstRand Bank’s alternative arguments, and focused the court on the quantum and liability for awards. The submissions by Johnson, Wrench and Hopcraft almost assumed that a fiduciary relationship, or the lesser duty of disinterested advice is owed to customers.

Whilst Close Brothers and FirstRand Bank dedicated around 25% of day one’s arguments to the questions surrounding the creation of a fiduciary duty between the customer and the motor dealer, Johnson, Wrench and Hopcraft dedicated only five minutes to this in the initial summary of the case. When Johnson, Wrench and Hopcraft moved on to the nature of the duty owed they faced significant judicial interventions ranging from the precise nature of the duty owed to how best to differentiate between a motor dealer and similar sales situations where a fiduciary relationship could never be expected.

It is clear from day two that the Law Lords are concerned with the extension of fiduciary duties and the extension of a duty to act in the customer’s best interests to the exclusion of those of a trader in a commercial scenario. How the Law Lords resolve this tension will be key to the final decision in this case.

Whilst the concept of a fiduciary duty and the potential liabilities this incurs has naturally taken centre stage in the industry, day two has also seen representations regarding an unfair relationship under s140A CCA. A conclusion that an unfair relationship existed contrary to s140A CCA as a result of the commission paid is a very real risk.

It should be noted that 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.

Anyone wishing to follow the case direct can do so at:
https://supremecourt.uk/cases/uksc-2024-0158