Appeal judgments on motor commission handed down
In January 2024, HHJ Worster overturned two County Court decisions of DDJ Harrop. In both Andrew Wrench v FirstRand Bank Limited(County Court at Birmingham, 31 January 2024) and Mark Hurst v BMW Financial Services (GB) Limited(County Court at Birmingham, 31 January 2024) the Claimants had entered into motor finance agreements with the Defendants, in circumstances where the Defendants had paid the car dealer/credit broker a commission. At first instance, in both cases, judgment was entered in favour of the Claimants on the basis that the Defendants had paid “secret commission” to the car dealers/credit brokers.
Secret or Half-Secret Commissions?
In both cases DDJ Harrop made an initial finding that the commissions were “half-secret” on the basis that all of the agreements stated that commissions “will” or “may” be paid. However, DDJ Harrop went on to rely on the following passage from the judgment of David Richards LJ in Wood v Commercial First Business Ltd [2021] EWCA Civ 471 (“Wood”) at [120]:
“I would also add that, in my view, the broker could place reliance on this term only if it expressly drew the client’s attention to it.”
DDJ Harrop concluded that in order for a term relating to the payment of commission to be capable of negating secrecy, it would have needed to have been drawn to the Claimant’s attention. As this had not happened, DDJ Harrop found that the commissions were fully secret commissions and not half-secret commissions.
HHJ Worster found that DDJ Harrop was wrong to reach that conclusion. Wood at [120] is dealing with a term in the agreement between the broker and the borrower, which states that the broker may receive a commission from the lender. In Wood it was argued that such a term was inconsistent with any duty of loyalty. It was in that context that David Richards LJ held that the broker could not rely on the term unless express attention was brought to it. Wood at [120] establishes that in order to negate a fiduciary duty, express attention needs to be brought to the term, but there is nothing in Wood that suggests that the same is necessary to negate secrecy. Rather, David Richards LJ defines half-secret commissions at [127] as scenarios in which the “borrowers in each case knew, or they would have known if they read the terms of business, that the broker might be paid fees by lenders”. Such a definition runs counter to the requirement that the terms would have to be expressly drawn to the borrower’s attention to negate secrecy.
HHJ Worster therefore held that DDJ Harrop had misunderstood and misapplied Wood and that in both cases, the commissions were half-secret because the Claimants knew or would have known had they read the agreements that the brokers might have been paid a commission by the lenders.
‘Wood’ Duty
In both cases DDJ Harrop found, applying the test at [48] and [51] of Wood, that the brokers were “under a duty to provide information, advice or recommendation on an impartial basis” and this duty applies as they were “someone with a role in the decision-making process in relation to the transaction in question e.g. as agent, or otherwise someone who is in a position to influence or affect the decision taken by the principal” (Novoship (UK) Ltd v Mikhaylyuk [2012] EWHC 3586 (Comm) (“Novoship”) at [108]).
However, HHJ Worster stated that such a finding was “difficult to sustain” as the brokers were “self evidently not impartial or disinterested” (Hurst v BMW at [34] and [35]). HHJ Worster agreed with the reasoning of HHJ Jarman KC in Johnson v FirstRand Bank Limited (County Court in Cardiff, 06 July 2023) at [19]):
“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.”
HHJ Worster also stated that DDJ Harrop was wrong to conclude that as the broker could decide which lenders and products it provided information for, there was a restrictive effect on the Claimant’s decision, meaning that the broker was in a position to influence or affect the decision. HHJ Worster drew a distinction between putting forward potential finance options (which could potentially effect what the purchaser decides to do in terms of finance) and taking part in or influencing the decision-making process. The broader group described in Novoship does not include a person who simply provides information.
In any event, even if the brokers were found to have owed a duty to provide information on an impartial and disinterested basis, this would be insufficient in half-secret cases. Rather, it would have to be shown that the broker owed a fiduciary duty.
Fiduciary Duty
DDJ Harrop, having found that the commissions were fully secret, did not go on to assess whether or not there was a fiduciary relationship. HHJ Worster commented that the question of whether there was a fiduciary relationship is a question of fact in each case, and whilst not explored in these cases, it would be, “very surprising if these motor dealers were fiduciaries” (Wrench v FirstRand at [38]). Motor dealers such as these are to be distinguished from the mortgage brokers in Wilson v Hurstanger Ltd [2007] EWCA Civ 299 where there was an obligation to get the best deal and a substantial fee was paid.
Unfair Relationship
In Wrench v FirstRand DDJ Harrop did not consider the claim under section 140A of the Credit Consumer Act 1974 (“CCA 19742”) and HHJ Worster found that it would not be appropriate to consider, so remitted it back to the District Judge.
However, in Hurst v BMW, DDJ Harrop had dealt with the claim for an unfair relationship and concluded that the relationship was unfair, but that consideration of a remedy under CCA 1974 was unnecessary, as Mr Hurst was entitled to rescission as of right. HHJ Worster found at [32] that the finding of unfairness “piggybacks” on the secret commission claim. The basis of the finding of unfairness was the breach of duty arising from the commission payment and the failure to refer to other lenders. However, HHJ Worster found that there was no sufficient justification for any findings that the broker was under a fiduciary duty or a duty to provide information on a disinterested and impartial basis. In addition, HHJ Worster also found that DDJ Harrop did not consider the relationship between the parties as a whole. When asked by the Judge, Mr Hurst accepted that even if the commission had been disclosed, it probably would not have impacted his decision to purchase the car and in light of that, he could not describe the relationship as unfair. However, there was no reference to this evidence in DDJ Harrop’s judgment. Therefore, HHJ Worster concluded that there were errors of law and approach, and that the decision should be set aside and the case remitted back to the County Court at Stoke.
Conclusion
Whilst of course these two decisions are not binding, the reasoning behind them is persuasive and aligns with the reasoning of HHJ Jarman in Johnson v FirstRand Bank Limited. With that being said, HHJ Worster also refers to the case Daniel Jones v BMW Financial Services (GB) Limited in which HHJ Richard Carter reached a different conclusion. In the absence of any direct higher authority, decisions at this level are likely to be more persuasive than they otherwise would be, especially where the reasoning is logical and easy to follow. In the author’s opinion the decisions of HHJ Worster present a common sense approach to the question of the duties owed by motor dealers.
This summary was composed by 25 Canada Square Chambers Pupil Alannah Kavanagh.