Secret Commissions – The implications
Looking into the key legal rulings in the motor industry loans sector
Contact usIt was common practice in many consumer-facing industries for brokers to be paid a commission by the entity to who the broker referred business to. Recent case law has confirmed that if a broker was paid a commission in these circumstances and this was not disclosed (or sufficiently disclosed) to the consumer, this amounts to a breach of the broker’s duty to act in the consumer’s best interests. The extent of a broker’s duty to the consumer is being considered in the Supreme Court case of FirstRand in April 2025 and the decision will have implications for many consumer- facing industries including lending, energy, motor finance and insurance.
Susannah Marsh is a partner in our financial services litigation team, and was the lead partner in the Court of Appeal case of Wood v Commercial First Business Ltd & ors and Business Mortgage Finance 4 plc v Pengelly [2021] EWCA Civ 471, which lowered the legal bar in secret commission cases as it was held that there was no need for a broker’s fiduciary relationship. The case introduced a new test – did the broker owe a duty to be impartial and to give disinterested advice, information or recommendations? This wide-reaching judgment had an unprecedented impact upon the consumer-finance sector and has resulted in a significant number of secret commission cases in various consumer-facing industries and most notably in the motor finance industry.
Contact the Moore Barlow team
This is an ongoing case and if you would like to know more please contact us
In October 2024 the Court of Appeal handed down judgment in the cases of Johnson & Wrench v Firstrand; Hopcraft v Close Brothers. 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 ‘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.
The recent Court of Appeal decision in Expert Tooling and Automation Ltd v Engie Power Ltd [2025] EWCA Civ 292 explores this issue further and it was held that without full disclosure of all material facts, the consumer is not in a position to give informed consent and therefore, the commission is secret, regardless of whether it was industry practice or if the terms and conditions mention commission. The test of materiality is a low one: whether the information might (not would) have affected the consumer’s decision.
It follows that if a secret commission is not sufficiently disclosed, the lender could also be held liable as an accessory to the broker’s breach of fiduciary duty. However, Expert Tooling clarified that an accessory liability requires proof of dishonesty in half-secret commission cases. It follows that a finding of dishonesty must depend on the facts of the individual case, which will most likely lead to further caselaw on the point.
Following the lenders’ successful application for permission to appeal, FirstRand is set to be heard in the Supreme Court on 1 to 3 April 2025 after being expedited due to the potential impact on various industries, with consumers potentially entitled to significant compensation. All eyes are on the Supreme Court’s findings as this will have an impact on the number, scope and likely success of secret commission claims.
Due to the potential impact, the FCA has sought permission to intervene and to make independent submissions as to areas within its expertise. It is also getting ready to step in with a redress scheme for motor finance, giving consumers a way to claim compensation without going through claims management companies.
The potential impact of the Supreme Court’s decision in FirstRand is huge and I will be following the hearing and outcome with dedicated intertest. Whilst the recent Court of Appeal cases have sought to provide clarity, it is clear that further clarification is needed and whilst this Supreme Court FirstRand case will go some way to do that, it is likely that there will be further case law as there are a number of issues that aren’t currently before the Supreme Court. All cases will turn on their own facts and so it is critical that lenders seek legal advice from the outset. This is a wide-reaching issue for a number of consumer-facing industries and it will have a significant impact, which is why the FCA is on standby. Lenders need to act now. Assessing exposure, tightening contracts, and preparing for claims is essential. Please reach out to our expert team for specialist legal advice.
Susannah Marsh – Partner – Financial services litigation
The timeline
April 2025
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.
December 2024
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.
April 2021
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 471provided ‘much-needed clarity’ to the lending industry on the liability of both the broker and the lender when a secret commission is paid – Read the full news story here – Court of appeal judgment clarifies legality of undisclosed broker commissions.
December 2016
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. Moor 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.
March 2015
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.
January 2014
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.
January 2007
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.
Our experts on this case
Susannah Marsh
Partner | Financial Services Litigation, Real Estate Finance
