The Supreme Court has recently handed down a significant decision that sheds light on the legal status of commission payments in the context of car sales and finance agreements. Here’s a breakdown of the key points from the judgment, and what they could mean for consumers and businesses alike.

Bribery Claims Rejected

First, the Court dismissed the argument that paying a commission to a car dealer amounted to bribery. Under civil law, bribery is only relevant where someone is under a single-minded duty to act solely in another’s interest, to the subordination of their personal interests . In this case, the car dealers clearly had a personal interest in the form of their own commercial interests – namely, selling cars for a profit. As such, the payment of commission did not cross the line into bribery.

No Breach of Fiduciary Duty

The Court also rejected the suggestion that car dealers owed a fiduciary duty to their customers. Fiduciary duties arise only where one party is obliged to act entirely for the benefit of another, disregarding their own interests. Here, the relationship was strictly commercial, with both sides acting at arm’s length to achieve their own objectives. The Court was clear that no one observing the transaction would have thought otherwise.

Unfair Relationship Upheld in Johnson’s Case

However, the Court did find in favour of Mr Johnson, ruling that there was an “unfair relationship” under consumer credit legislation. The finance company was ordered to pay Mr Johnson an amount equal to the commission, plus interest from the date of the agreement.

What Makes a Relationship “Unfair”?

The Court provided some guidance on what factors it considered when deciding if the relationship was unfair. These include:

• The size of the commission compared to the overall credit charge and the cost of the car
• The nature of the commission (whether it is discretionary or otherwise)
• The characteristics of the customer
• Whether the commission was disclosed
• Any breach of the regulatory rules involved

Importantly, the Court stressed that this is not an exhaustive list, and each case will turn on its own facts. In Mr Johnson’s situation, the commission was 55% of the credit charge. Further the paperwork gave a misleading impression suggesting the dealer would find the “best” package from a panel of lenders when it was in fact already tied to one lender – even though Mr Johnson hadn’t actually read the documents. Taking all these factors into account, the Court concluded that the relationship was unfair.

Final Thoughts

This decision clarifies the boundaries between commercial practice and unlawful conduct in the context of commission payments. While not every commission will be problematic, the case highlights the importance of transparency and fairness, especially where large sums are involved or where customers may be misled. For both consumers and businesses, it’s a timely reminder to pay close attention to the details of any financial arrangement. The FCA consultation on the redress scheme commences in October. Market participants should consider making responses to the consultation on the shape of the scheme including whether it is “opt-out” or not. Contact us if you would like to discuss this or better assess the implications.

If you'd like to discuss this judgement and the impact it will likely have on the market, please do reach out to Linton Bloomberg, Claude Brown, Sarah Caldwell, Romin Dabir, Kathleen Garrett, Simon Hugo, or Thomas Webley.

See the full judgement of the Supreme Court here https://supremecourt.uk/uploads/uksc_2024_0157_0158_0159_judgment_2bb00f4f49.pdf