Johnson v Firstrand Bank Ltd (t/a Motonovo Finance)

The Court of Appeal held that where a motor dealer acts both as seller and as a credit broker it owes the consumer a duty to provide information, advice or recommendation on an impartial or disinterested basis (the "disinterested duty"), and that in the present factual matrix an ad hoc fiduciary duty arose in tandem with that disinterested duty. The court distinguished two categories of case: (a) where a commission paid by the lender to the broker is secret, the payer is a primary wrongdoer and liable in common law and equity for remedies including disgorgement; and (b) where there has been partial disclosure sufficient to negate secrecy but not to procure the borrower’s fully informed consent (the "half-way house" or partial disclosure scenario identified in Hurstanger), the lender may be liable in equity only as an accessory to the broker’s breach of fiduciary duty.

Applying those principles, the court found that the commissions were secret in Hopcraft and in Wrench (FirstRand) and that the lenders were therefore primary wrongdoers. In Johnson the court accepted the concession that the case was one of partial disclosure: FirstRand was liable as an accessory for procuring the broker’s breach of fiduciary duty because there was no informed consent. On Johnson’s statutory claim under sections 140A–C of the Consumer Credit Act 1974 the court held that the lender’s relationship with the customer was unfair and ordered repayment of the commission with interest.

This group of three consolidated appeals concerned consumer hire-purchase transactions arranged through motor dealers who also acted as credit brokers. Each claimant alleged that the dealer received commission from the lender which was not disclosed to the consumer, and sought relief including disgorgement of commission, rescission and statutory relief under sections 140A–C of the Consumer Credit Act 1974.

Background and parties:

• Claimants: Marcus Johnson, Andrew Wrench (two transactions) and Amy and Carl Hopcraft. All were relatively unsophisticated consumers who acquired second-hand cars by hire-purchase and, in Johnson’s case, an associated personal loan.
• Defendants: MotoNovo Finance (FirstRand) in Johnson and Wrench; Close Brothers in Hopcraft.

Procedural posture: The cases reached the Court of Appeal on second appeal from County Court decisions. The Court of Appeal heard the three appeals together and delivered a single consolidated judgment.

Relief sought: Return of commission (disgorgement), equitable remedies including rescission, and statutory relief under sections 140A–C of the Consumer Credit Act 1974 (unfair relationships).

Issues framed by the court:

• whether an express statement in credit terms that commission may be paid negates secrecy where the borrower neither reads nor is directed to those terms;
• whether the "disinterested duty" identified in Wood suffices to found accessory liability in partial disclosure cases or whether a fiduciary duty is required;
• what state of knowledge or dishonesty is necessary for accessory liability by the lender where there has been only partial disclosure;
• whether the dealers owed the claimants the relevant duties in the three cases;
• whether the lenders were liable to repay commission and/or whether statutory unfairness under the 1974 Act was made out (considered in detail in Johnson).

Court’s reasoning (concise):

• The court adopted and applied the law in Wood and Hurstanger. Wood requires that the recipient of the payment was under a duty to provide impartial or disinterested information, advice or recommendation; where the commission is secret the payer is a primary wrongdoer. Hurstanger describes the partial disclosure ("half-way house") scenario in which, though secrecy is negated, informed consent was not obtained; in those cases accessory liability in equity depends on there being a fiduciary duty and on the lender’s knowledge (or conscious disregard) of the absence of informed consent.
• The dealers in these appeals were acting as credit brokers under the FCA definition and owed claimants the disinterested duty; that duty gave rise to an ad hoc fiduciary duty in these circumstances.
• Hopcraft: no disclosure of commission; Close was therefore a primary wrongdoer. Wrench: the lender’s buried reference to possible commission in small-print standard terms did not amount to meaningful disclosure; FirstRand was a primary wrongdoer. Johnson: there was partial disclosure (a signed "Suitability Document" and a terms clause) but the disclosure was misleading and did not supply the material facts (amount, calculation, and contractual tie giving lender first refusal). On the facts there was no fully informed consent and FirstRand was liable as an accessory in equity; additionally, Johnson succeeded under s.140A–C as the relationship was unfair and the court ordered repayment of the commission with interest.

Subsidiary findings and implications: The court emphasised that a mere buried reference to the possibility of commission in small print will not negate secrecy where the lender knows the consumer will not read it. The judgment recognises tensions between Wood and Hurstanger and stresses that both lines remain binding; it provides guidance for County Courts dealing with the many similar claims.

The Court of Appeal allowed all three appeals. It held that the dealers were acting as credit brokers and owed a disinterested duty and concomitant fiduciary duty to the consumers. Where commissions were secret (Hopcraft and Wrench) the lenders were primary wrongdoers and liable to disgorgement; where there was partial disclosure (Johnson), the lender was liable as an accessory to the broker’s breach of fiduciary duty because there was no fully informed consent. On Johnson’s Consumer Credit Act claim the relationship was unfair and repayment of the commission with interest was ordered.

Second appeals from County Court judgments. Johnson and Wrench were second appeals from decisions in the County Court (Newport and Stoke/Birmingham pathways) and Hopcraft was transferred to the Court of Appeal from the County Court at Hull by order under CPR 52.23(1); the judgment summarises the first-instance and first-appeal dispositions but the lower-court neutral citations are not given in the judgment except as described in the body of the reasons.