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Motor Finance Commission and Fiduciary Relationships
Funders gearing up to deal with the avalanche of broker commission claims in motor finance cases will likely be aware of a recent stream of negative decisions coming from the higher Courts on matters including the relevant limitation period for bringing claims, but there is some welcome news in a recent County Court decision on one of the key issues.
Claimants’ solicitors have been launching these claims irrespective of whether they involved the introduction of the customer to the funder by a true broker, in the sense of somebody engaged by the customer to find finance on his/her behalf, or the introduction of the customer to the funder by the Dealer selling the vehicle.
The point arose for decision in an appeal in the County Court in the case of Johnson v FirstRand Bank Ltd (unreported), 6 July 2023, (Cardiff County Court)
In this case the Hire Purchase Terms and conditions included a statement that the Dealer “may be paid a commission.” This was therefore treated as a “half secret” case and after analysing recent authorities in the higher courts HHJ Jarman KC confirmed that in order to pursue a “half-secret” commission case, the Claimant needed to prove that there was a fiduciary relationship. It was not sufficient to argue that the Dealer was merely an agent of the Claimant and that there was therefore a duty on the part of the Dealer to give impartial or disinterested advice.
The judge followed the classic definition of a fiduciary duty from a previous case:
“A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary.”
After considering the competing arguments of the parties the judge came to the following conclusion:
“[The Claimant] accepted that the dealer was wearing two hats, one when it was selling the car, and the other when it was dealing with the finance. In my judgment this is the essential distinction with the broker cases, where brokers do not themselves offer what their client wants, but offer the service of obtaining it, namely finance. It is difficult to see how in practice or in principle a car dealer could offer single minded loyalty to a customer when dealing with the finance, but not when selling a car to the same customer which gives rise to the need for finance. Finance is incidental to the purchase of the car for those who need to borrow”.
The claim on this basis was therefore dismissed, though a separate claim for unfairness under section 140B of the Consumer Credit Act 1974 proceeded and was dealt with on the merits.
Comment
This case contains a welcome reminder, often overlooked by claimants’ solicitors in their approach to this bulk litigation, that in order to argue a “half-secret” commission case, there needs to be a finding of a fiduciary relationship which carries with it a duty of single-minded loyalty. It is not sufficient to argue that there was merely agency and therefore a duty on the part of the Dealer to give impartial or disinterested advice.
This outcome is also in accord with prevailing case law as previous decisions dealing with the three-party Hire Purchase transaction situation, albeit not in a commission context, confirm that the starting point is that the Dealer is neither party’s agent but is a party in their own right. Therefore, if the Dealer is not even an agent of the customer, it is highly unlikely that they could be found to be a fiduciary agent.