Secret Commissions – the implications

Hopcraft v Close Brothers; Johnson & Wrench v FirstRand Bank Ltd (t/a MotoNovo Finance) [2025] UKSC 33

In a highly significant ruling for the motor finance sector, the Supreme Court overturned the Court of Appeal’s findings on fiduciary duty and bribery, offering much-needed clarity for lenders. The Court held that car dealers arranging hire purchase finance do not necessarily owe a fiduciary duty to the consumer. The Court also held that the Courts must consider whether a relationship between parties is fiduciary in nature in cases of undisclosed commission. This has significantly raised the bar in trying to bring a claim relating to the payment of an undisclosed commission.

The Court did, however, allow Mr Johnson’s claim under section 140A of the Consumer Credit Act 1974, based on an “unfair relationship” with the lender. The unfair relationship was established due to the payment of the undisclosed commission and the Court has provided some helpful commentary on the what needs to be assessed in considering unfair relationship claims based on the payment of an undisclosed commission. Those factors will include, the amount of the commission (in the case of Mr Johnson it was 25% of the amount of credit), the nature of the commission and the attempts to disclose it, and the financial sophistication of the customer.

While the outcome is positive for lenders and generally narrows legal exposure for lenders in commission-based claims, it confirms that there are still scenarios in which lenders find themselves liable due to the payment of undisclosed commissions in fact specific situations.

Expert Tooling and Automation Ltd v Engie Power Ltd [2025] EWCA Civ 292

In this half-secret commission case, the Court of Appeal found that there had been a breach of fiduciary duty by the broker as it had failed to obtain the consumer’s informed consent to receiving commission. However, the Court of Appeal also found that dishonesty was needed for the payer (the lender) to be liable as an accessory and that dishonesty for this purpose requires more than simply the payment of commission with knowledge that the recipient is a fiduciary.

Unusually, the Court of Appeal granted permission on appeal to the Supreme Court on the grounds on which the appellant did not succeed so watch this space.

Johnson v FirstRand Bank Ltd (London Branch) (t/a MotoNovo Finance) [2024] EWCA Civ 1282

This Court of Appeal decision clarified the requirements for transparency in respect of commissions paid by lenders to brokers, and demonstrates the potential liability of lenders directly to consumers where the court finds that disclosure has not been sufficient. The Court of Appeal ruled that car dealers when acting as a broker to arrange car finance for a consumer, owed both a “disinterested duty” and a fiduciary duty, which could be breached if the broker did not disclose (or sufficiently disclose) to the consumer they had received commission from the lender. As a result, the broker had a duty to act in the best interests of the consumer and not put themselves in a position of conflict and to do that it needed to ‘fully’ disclose any commission due to be paid to it and the nature of that commission. It is not enough to simply allude to the payment of a commission in the terms and conditions.

It has been appealed to the Supreme Court and the expedited hearing is due to take place on 1 to 3 April 2025.

Wood v Commercial First Business Ltd

This case clarified the legal position on secret commission payments made by lenders to brokers, particularly in situations where the broker owed a ‘duty of loyalty’ to the borrower.  Moore Barlow acted for the Defendant (and Appellant) in this Court of Appeal case.

The case involved borrowers who defaulted on their mortgages and later discovered that their brokers had received undisclosed commissions from the lender. They argued that this secret commission made their loan agreements unfair and sought to have them rescinded. Previously, courts had issued conflicting judgments on whether a broker must have a strict fiduciary duty (a legal obligation to act in the borrower’s best interest) for such commissions to be considered unlawful. This appeal aimed to clarify:

• Whether a fiduciary duty is required to challenge secret commissions.
• Whether brokers in these cases owed such a duty.
• Whether the commissions were ‘half-secret’ (where borrowers were told a commission may be paid but not the amount).

The Court of Appeal ruled that:

• A strict fiduciary duty is not required; instead, brokers only need to owe a ‘duty of loyalty’ to borrowers.
• If a broker was expected to provide impartial advice, any undisclosed commission could lead to legal consequences for both the broker and lender.
• The commissions in this case were ‘fully secret’ because merely stating that a commission ‘may’ be received was not enough to inform borrowers.

This ruling reinforced that undisclosed commissions expose lenders and brokers to potential claims, including:

• Borrowers seeking to cancel their loan agreements.
• Lenders and brokers being held jointly responsible for financial losses.
• Courts rescinding loans if borrowers can return the borrowed funds.

The ruling In Wood v Commercial First Business Ltd & Ors [2021] EWCA Civ 471 provided ‘much-needed clarity’ to the lending industry on the liability of both the broker and the lender when a secret commission is paid.

Commercial First Business Limited v Pickup & Vernon (unrep, Ch Div, Manchester District Registry, 6th December 2016)

In the Pickup and Vernon case, the High Court was persuaded that there was no fiduciary duty on the basis the borrowers could not have “reasonably expected undivided loyalty” as they did not have a contract with the broker nor did they pay the broker a fee for their services and they were aware of the possibility of the payment of a commission. Moore Barlow acted for the successful Claimant in this case.

The key point of the case hinged on the fiduciary responsibility a broker has if it is paid commission. The borrowers argued that they had no financial responsibility for the contractual shortfall because there were secret commissions paid by the lender to the brokers without the borrowers’ informed consent. Therefore, there was an unfair relationship between lender and broker, and a failure to obtain a proper price for the properties. In this case there were two brokers involved in the loans and both received commission, albeit the exact amount of the commission was only disclosed in the last two loans. The borrowers acknowledged that they knew the commissions were paid for the last two loans, but not the first four, but they also said that, if they had known the amount of the commission, it would have caused them no concern.

The court was able to distinguish the previous Court of Appeal’s decision in Hurstanger, where it noted that the relationship between the borrower and broker was “obviously a fiduciary one”, it clarified the fact that only in specific cases would the broker owe a fiduciary duty to the borrower. The factors to be considered include the level of contact with the broker and what services the broker was providing, the borrower’s level of sophistication, awareness of how the broker was being remunerated, whether any written contract existed and whether a fee was paid by the borrower to the mortgage broker.

McWilliam v Norton Finance (UK) Ltd (in liquidation) [2015] EWCA Civ 186

In this Court of Appeal case it was has held that the broker owed the consumer a fiduciary duty such that it was liable to account to them for commissions received without their informed consent.This was on the basis that the materials provided by the broker were not sufficient to alert the consumer to the additional commissions that were paid to the broker. The Court of Appeal found that there had been a contract of agency and as such a fiduciary duty existed and the broker should not have allowed its duty and its interests to conflict. In this case the Court of Appeal drew a distinction between a sophisticated and non-sophisticated consumer. It was found in this case that the consumer was not financially sophisticated, which was relevant to the overall conclusion of the Court of Appeal.

Plevin (Respondent) v Paragon Personal Finance Limited (Appellant)

This case centered around the sale of Payment Protection Insurance (PPI) and whether the lender, created an unfair relationship with the borrower by failing to disclose high commission payments connected to the PPI payment. The Supreme Court ruled in favour of Mrs. Plevin, stating that the failure to disclose the commission made the relationship unfair as had she known about the high commission, she may have reconsidered purchasing the PPI.

This decision set a precedent that undisclosed high commissions in loan agreements could make them unfair, leading to wider implications for PPI claims.

Wilson v Hurstanger [2007] EWCA Civ 299

The Hurstanger case introduced the concept of a ‘half-secret’ commission where a borrower under a loan agreement was advised by his broker that he, the broker, might receive a commission from the lender but not the amount. The Court of Appeal found that it was possible that this partial disclosure was sufficient disclosure to negate secrecy but nevertheless the borrower’s informed consent had not been obtained.