The recent largely anticipated judgment of Hopcraft and another v Close Brothers Limited and Ors will cause sighs of relief across the motor finance industry as the UK Supreme Court (“UKSC”) overturned a judgment of the Court of Appeal that was widely reported in the UK press as having significant implications on the motor finance industry. Indeed, the Financial Conduct Authority in its intervening submissions noted that a UKSC decision would provide “finality and clarity in the law” and would aid “consistency in respect of the many thousands of pending complaints and claims”.
In Hopcraft, the appeal heard three joined cases where customers alleged that undisclosed commissions paid by lenders to car dealers amounted to bribes. The primary claims were in the tort of bribery and for dishonest assistance in a breach of fiduciary duty. Separately, one claimant, Mr. Johnson, argued his relationship with the lender was unfair under the Consumer Credit Act 1974 (“CCA”).
Bribery and Fiduciary Duty Claims Rejected
However, the UKSC rejected the argument that the tort of bribery could succeed, as the tort is dependent on the existence of a fiduciary duty. The UKSC clarified that for a fiduciary duty to exist, there would have to be an undertaking of “single-minded loyalty” where one party agrees to act exclusively in the interests of another. This was not satisfied by car dealers, whose continuing status as an arm’s length seller is “irreconcilably hostile” to such an obligation. Therefore, there could be no successful claim for dishonest assistance in a breach of a fiduciary duty or in bribery. The judgment also provides an important clarification of the law highlighting that a disinterested duty is not sufficient to ground a claim in equity of this nature with a full fiduciary duty being required.
A New Path for Consumers: The “Unfair Relationship” Test
Despite this, the UKSC illustrated a willingness to define and explore territory surrounding an unfair creditor-debtor relationship under section 140A of the CCA. The court indicated that in determining whether a relationship was unfair, it was required to have regard for any factors which it thinks relevant, indicating a fact-sensitive exercise. The Court found that Mr. Johnson’s relationship with the lender was unfair under section 140A of the CCA. This was because of two key factors:
· The size of the commission: The undisclosed commission was exceptionally large, representing 55% of the total cost of credit.
· The secret commercial tie: The dealer had created a “false impression” that it was searching a panel of lenders when, in reality, it was tied to FirstRand, and putting terms forward on behalf of FirstRand, which was not disclosed to the customer
Implications for the Motor Finance Industry
While the ruling shuts the door on bribery claims in this context, it simultaneously provides a clear roadmap for success under the “unfair relationship” provisions of the CCA, creating a new front for potential consumer claims. It remains to be seen what implications this judgment will have on future litigation and on the legal profession’s future understanding of breaches of fiduciary duties.
