Supreme Court case concludes

The first day of the Hopcraft appeal hearing commenced with a full bench consisting of Lord Reed, Lord Hodge, Lord Lloyd-Jones, Lord Briggs and Lord Hamblen.

The five key issues for the court to consider over three days are:

1) When acting as credit brokers, do car dealers owe consumers a “disinterested” and/or a fiduciary duty to provide information, advice or recommendation?

2) If so, were the payments of commissions by the lenders to the car dealers secret such that the lenders become primary wrongdoers?

3) Can the lenders be liable in the tort of bribery? If so, what is the correct approach to remedies?

4) If there was sufficient disclosure of the commission to negate secrecy, was there insufficient disclosure to procure the consumers’ fully informed consent to the payment such that the lenders are liable as accessories for procuring the credit brokers’ breach of duty?

5) Can insufficient disclosure also suffice to make the relationship between lender and consumer “unfair” for the purposes of the Consumer Credit Act 1974?

Mark Howard KC, acting for FirstRand, began argument on the first two issues and presented arguments to persuade the court that car dealers do not owe consumers either a disinterested duty or a fiduciary duty when acting as the car dealers did in these cases. He took the court through the reasoning and detail behind why this was the case, taking time to look at the origin of the duty of loyalty and how it is applied in the case law.

He distinguished the three cases under appeal from the case law where the duty applied. He drew the court’s attention to an analogy relating to a salesman who sells goods, stating that it would be ridiculous to suggest that the salesman would sell goods to the consumer without any self interest in relation to making a profit. In the same way, car dealers want to sell the car and do not undertake to subordinate their interests to that of the consumer.

Laurence Rabinowitz KC, acting for Close Brothers, presented argument on issues two and three and sought to persuade the court that commission payments should not be equated to bribery and that that the remedies for an act of bribery should be construed under the law of equity i.e. any remedy so provided should exclude both recission and money compensation.

He provided the court with detailed case law going back to the 19^th century to support his arguments.

Another key point was the appropriateness of remedies set out in this case. He rejected that both recission of the contract and monetary compensation was appropriate. The argument put forward was that you could not practically rescind the purchase contract because effectively the consumer had driven away with the car. It would also be unfair to offer double compensation to claimants.

Mr Howard put forward arguments to attack the notion that the payment of commission in the cases were secret referring to the key documents presented in evidence previously (the pre contractual documents which disclosed the commission payments in two cases) and the body of law and regulation that had evolved which regulated such transactions. Further detailed argument and legal authority was presented to the court and he requested that the court set aside the Court of Appeal’s judgement.

He also addressed the court on the unfair relationships issue, setting out why the relationship between lender and the consumer or between the consumer and broker was not unfair.  He set out the key facts on how motor finance agreements operate and the steps taken to communicate relevant information to the consumer which would negate the unfairness elements.

Jonathan Kirk KC, representing the National Franchised Dealers Association (NFDA), informed the court that as intervener, his job was to help the court formulate a rounder view of the issues in the matter. He set out in detail how car dealers operate and the expectations of consumers as far as the NFDA were concerned. The key point made was that consumers were well aware that car dealers operated commercially both to sell cars and to introduce consumers to lenders. He informed the court that as far back as 1914, it was understood that the payment of commission was a normal part of Hire Purchase transactions.

Robert Weir KC, acting for the respondents, put forward his substantive reply to the points raised by the parties before. He made detailed arguments to support the contention that the dealer did in fact owe a fiduciary duty as well as a disinterested duty to consumers and that the court should therefore uphold these points. He also set out why, in his view, commission payments could be considered bribes and urged the court not to alter the law relating to bribery. Central to his argument was his contention that the car dealer acted in a postion of trust on behalf of the consumer.

The Court questioned Mr Weir on this latter submission and put to him the point made previously that if this principle were to be applied more broadly it could apply to anyone in the position of a car dealer/broker. Mr Weir accepted this point on the basis that this is how the law applied in this case. Any consideration concerning the impact of the principle on the number of situations that it could apply is irrelevant as the court was bound to apply the principle to the facts in this case.

Robert Weir KC, acting for the respondents, resumed his submission to the court. He continued his point that a dealer acts for and on behalf of a consumer when acting as a credit intermediary and is entrusted to select a suitable finance deal for the consumer. As a result, it was clear that the dealer, acting in this capacity, owed the consumer a fiduciary duty. He spent time analysing the evidence, case law, regulatory and statutory law which, he argued, supported this contention. He also developed the point that because of this duty, commission paid to the dealer by the lender without the knowledge and consent of consumer would be improper and amounted to a bribe.

He was pressed by the court answer whether he stuck by this contention despite the practice of paying commission in HP transactions had been occurring for many years and was well known. Mr Weir was resolute that practice over many years was not relevant but that the facts of the case and application of the law, as he put forward, were the decisive factors to be considered by the court.

He also made submissions concerning how the following areas should be viewed by the court in relation to the current case:

• the unfair relationships elements (under the s140 of the Consumer Credit Act) and how this might operate in the relationship between the lender/broker and the respondents;
• accessory liability: how the law applied to imposing liability on lenders for actions of the dealer/broker;
• the requirements for full disclosure and informed consent in the transactions under review, what the law required from the parties mainly the lender and why this was necessary. He referenced the wording used in the pre contractual documents (relating to the fact that commission may be paid or received) and the prominence that it was given in the documentation (in small print).

Jemima Stratford KC (and Aarushi Sahore), acting for the Financial Conduct Authority (FCA) as intervener, put forward concise submissions to the court setting out:

• the significance of this matter from the regulator's perspective given the size of the UK market;
• the public interest element to have the matter resolved in an orderly way considering the wider consumer protection ramifications;
• the need for certainty given pending claims before the Financial Ombudsman Service (FOS). She also informed the court of the diagnostic work currently underway by the FCA and the decision made by the FCA to consult on a redress scheme within 6 weeks of the judgment being handed down by the court.

The court was also informed that the FCA was aware of the broad impacts of the Court of Appeal judgment on other regulated markets and the sweeping approach proposed on fiduciary duty was one which could blur the line between the role of motor finance brokers and other intermediaries. She made detailed but concise submissions concerning the application of the law and regulation from the FCA’s perspective.

In her conclusion, she reflected the FCA’s gratitude for the court hearing the matter on an expedited basis but respectfully requested that clarity be given on when judgement could be expected. She made the court aware of the hearing dates of an appeal in a related matter (Clydesdale Financial Services Ltd v Financial Ombudsman Service Ltd) and the importance of providing the FCA with legal certainty to inform its work later in the year.

Mr Howard, in reply, set out his response to respondent’s points noting that the funding structures underpinning HP transactions were in place since the 1970s with no suggestion that this was objectionable or that the payment of commission to the dealer was wrong. In fact, the practice was regulated and there was no indication from parliament or otherwise to stop it. He also set out in detail his responses to affirm his contention that the dealer did not owe a fiduciary or disinterested duty to consumers, that this was accepted practice, not dishonest and not unfair.

Mr Rabinowitz similarly set out his responses in answer to the respondent’s points and reiterated the request to the court to abolish the tort of bribery. He also provided some additional case law and provided additional legal reasoning to support the points he had made concerning that there was no distinction between a fiduciary or disinterested duty.  

Lord Reed, President of the Supreme Court, thanked all parties for their input and indicated that it would be realistic to expect a judgement by July subject to the level of debate required by the court.