Motor Finance Claims – The concept of ‘Agency’

Article by Trevor Berriman

In motor finance claims, being claims where a customer is asserting a right to rescind a finance agreement on account of a secret commission having been paid by the Lender to the Credit Broker, the customer must first establish that the Credit Broker acted as their agent for the purposes of obtaining finance.

The requirements of such a claim were set out by Slade LJ in Industries & General Mortgage Co Ltd v Lewis [1949] 2 All ER 573 (quoted in Wood v Commercial First Business Ltd and Business Mortgage Finance 4 plc v Pengelly [2021] EWCA Civ 471 at para 20):

“…(i) that the person making the payment makes it to the agent of the other person with whom he is dealing; (ii) that he makes it to that person knowing that that other person is acting as agent of the other person with whom he is dealing; and (iii) that he fails to disclose to the other person with whom he is dealing that he has made that payment to the person whom he knows to be the other person’s agent.”

The test for the type of relationship necessary for a secret commission claim was subsequently stated as follows: “in cases such as the present where an “agent” providing advice, information or recommendations has received or been offered a bribe or secret commission, the question that the court should ask and focus on is: did the “agent” owe a duty to be impartial and to give disinterested advice, information or recommendations?” (David Richards LJ in Wood at §102).

Two matters therefore arise:

  1. Was the Credit Broker the customer’s agent?
  2. Did the Lender know that the Broker was acting as the agent of the customer?

It is open to Lenders to argue that the Credit Broker was neither the customer’s agent nor under any other obligation to “provide information, advice or recommendation on an impartial or disinterested basis” in circumstances where the primary relationship between the customer and the Broker (who is also the Dealer!) was that of motor dealer and customer.  The primary goal was to sell a Vehicle, unlike the freestanding credit brokers in Wood).

In the absence of any contractual arrangements between the Credit Broker and the Customer, it may be that claims fail at (almost) the first hurdle.  If there was no agency, there was no duty and the Wood style rescission claim will not be available.

A helpful and persuasive judgment is contained in the case of Johnson v Firstrand Bank Limited (unreported, 6 July 2023 – available to download here). His Honour Judge Jarman KC clarified, on appeal, the position on whether a motor finance introducer owes a fiduciary duty to a customer. The court decided that there was an essential distinction between broker cases and motor commission cases. The judge stated “that it is difficult to see how in practice or in principle, a car dealer could offer single-minded loyalty to a customer [par.19]” and concluded that the motor dealer was not a fiduciary [Para.20].