Lawyers for car finance companies have told the Supreme Court that such lenders owe no fiduciary duty to buyers. In the first of three days of submissions in a keenly-awaited case on liability for hidden commissions, Mark Howard KC compared car dealers’ duties to those of a shop assistant or a sommelier, saying they had no legal responsibility to find the best deal for customers.
It would be ‘nonsense’ to argue that a vendor owed a fiduciary duty to customers in pushing the products they should purchase, Howard said. ‘They have never agreed that, they have never undertaken to subordinate their own interests to that of the customer,’ he added.
‘That does not leave the customer without protection at law, [but] a person does not become a fiduciary simply if they have a role in the decision-making process of another.’
Howard represents Firstrand Bank (MotoNovo) in a joint appeal against the Court of Appeal’s decision involving the disclosure of commission paid to motor dealers by lenders for arranging finance agreements.
In Johnson v Firstrand, the Court of Appeal found that purchasers were owed a disinterested duty to provide information, advice or recommendations and that the relationship between the dealers and the customer was fiduciary in nature.
The case is estimated to be worth billions to the industry and law firms representing thousands of customers could receive a multi-million-pound windfall if the Supreme Court upholds the decision.
The Supreme Court heard that the Financial Conduct Authority has made written submissions in which it suggests that the CoA decision went ‘too far’ in treating motor dealer brokers as owing fiduciary duties. The City regulator adds that the Supreme Court judges should ‘exercise a degree of caution before accepting the appellants’ (lenders) invitation to jettison the tort of bribery or the "disinterested" duty, as that may leave a lacuna in the law and lead to the distortion of established principles’.
For lender Close Brothers, Laurence Rabinowitz KC said the CoA had taken a ‘wrong turn’ in applying the tort of bribery to the case, and had offered claimants an entitlement to damages ‘without having to establish anything at all’. He said the claimants had not shown any evidence of loss to the customer or gain to the lenders.
The Financial Conduct Authority has already said it will set in motion an industry-wide redress scheme if the Supreme Court finds that car buyers were unfairly charged commission.
The hearing continues.
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