Car dealers engaged the tort of bribery when they took secret commissions for arranging finance deals, the Supreme Court has heard.
Lawyers for the three test claimants in Johnson v FirstRand Bank submitted that lenders were in breach of their fiduciary duty when motorists were signed up to agreements without their full knowledge or consent.
Robert Weir KC said that dealers selected a single proposed agreement from one lender and put forward only this option to the claimants. In that way, the dealer was exercising discretion on the customer’s behalf and the tort of bribery was engaged.
Weir rejected the lenders’ arguments that the situation was analogous to that of ‘a shop salesman or wine sommelier’ and argued that dealers had not demonstrated an ‘objective undertaking’.
‘The salesman is selling me the product, it is an arm’s length transaction in which they can give me as much froth as they wish,’ he said.
‘That is well understood. The dealer is not selling you the car. The dealer is agreeing the price with you and then moving to a credit-making journey saying “I am going to source and select a finance agreement with a third party”… there is no doubt that the dealer performs distinct and separate roles.’
Weir said the respondents’ arguments were consistent with the law as it stands and that the Court of Appeal had been right to conclude that claimants were owed a fiduciary duty.
The claimants submitted that none of them knew of commissions being paid by lenders to dealers, and they believed that dealers made their profit from the sale of the car.
An unsuccessful appeal is likely to open the door for thousands of claims from people who bought cars through motor finance agreements. Banks and lenders have set aside hundreds of millions of pounds in anticipation of the outcome.
Earlier this week, Laurence Rabinowitz KC, for appellant Close Brothers, said the Court of Appeal 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’.
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 was due to end today with the Supreme Court justices reserving judgment.
