The UK Court of Appeal found in October 2024 that a motor dealer who procured and offered finance to the buying customer to secure a lower purchase price of the vehicle was acting as a broker on behalf of the customer in a capacity that involved an obligation of loyalty and trust. The fiduciary duty gave rise to an obligation to declare the commission earned by the dealer from the lender.
As a result of this finding, the court held that, in three simultaneously heard matters, the commission earned by the dealer/broker should be repaid to the customer together with interest paid on it under the hire purchase and personal loan agreement.
There are many indications in the judgment that the court was stretching the concept of a fiduciary relationship. The court said the broker need not be an agent in the strict legal sense of being authorised to enter into a contract on behalf of the customer. The fact that the applicable statute deemed the credit broker to be the agent of the lender for some purposes did not mean that a person could not be acting on behalf of one contracting party for certain purposes and on behalf of the other party for other purposes. The fact that the broker presented the claimant with just one offer from one lender did not, according to the court, affect its analysis. It was said that “these relatively financially unsophisticated individuals undoubtedly placed trust and confidence in the brokers to secure an agreement which was affordable and which was, at very least, competitive”. It was said that the brokers did not randomly source lenders but selected a lender based on what the customer was looking for in relation to affordability and the period of the agreement. The brokers were said to be “in a position to take advantage of their vulnerable customers and there was a reasonable and understandable expectation that they would act in their best interests”.
The court did find that the fiduciary duty exists “unless the brokers made it clear that they did not accept such duties”.
It appears that this matter will go on appeal. As we know from other matters, the courts sometimes abandon strict legal principle in favour of helping those they see as vulnerable customers although that should not be the test when not all customers are unsophisticated. This kind of decision opens a floodgate of claims.
As the court pointed out, the consequences of the decision can be avoided if the broker makes it clear they are not acting as agent in a fiduciary relationship for the customer. No-one has to be an agent on behalf of anyone else. Secondly, if commission is earned for whatever is done, declaring the commission to the customer resolves the problems of having to disgorge the commission as a secret commission.
[Johnson v FirstRand Bank Limited (London Branch) T/A Motonovo Finance[2024] EWCA Civ 1282]