No Bright Lines: The Supreme Court’s Open-Textured Approach to Unfair Relationships

Earlier this month, the Supreme Court overturned the Court of Appeal’s decision in three appeals (Johnson v FirstRand Bank, Wrench v FirstRand Bank and Hopcraft v Close Brothers Limited [2025] UKSC 33) (the “Motor Finance Judgment”), finding that car dealers, when acting as intermediaries  between customers and lenders to help to obtain finance to buy a car, do not owe fiduciary duties to the customers. The consequence of this was that the claims against lenders which were brought on the basis of the tort of bribery and dishonest assistance failed. However, on the facts of one of the cases (Johnson), the Supreme Court considered that the relationship between the customer and lender was unfair within the meaning of section 140A of the Consumer Credit Act (the “CCA”). The Court emphasised that section 140A is a broad provision and its application is highly fact specific. Nevertheless, the Motor Finance Judgment coupled with other Supreme Court cases offer some broad guidance on what may be relevant to determining whether a relationship is unfair in commission cases, however what constitutes an unfair relationship outside of this context remains an open question. 

The facts of the Johnson case reflect a typical motor finance arrangement. Mr Johnson had put down a non-refundable deposit to secure a vehicle from a dealer but needed finance to purchase the vehicle, which the dealer offered to arrange for him. Shortly thereafter he entered into a credit agreement with the lender [292], and in respect of this agreement a commission was paid by the lender to the dealer. Mr Johnson brought a claim against the lender based on (1) the tort of bribery, (2) dishonest assistance in the dealer’s breach of fiduciary duty, and (3) an unfair relationship under the CCA [46]. 

Whilst the claims involving bribery and dishonest assistance failed, the Supreme Court upheld the finding of an “unfair relationship” between Mr Johnson and the lender under section 140A CCA. The Supreme Court noted that whilst the statutory test for unfair relationships is broad and open textured, the following factors would normally be relevant to consider in commission cases when determining whether a relationship was unfair: the size of the commission relative to the charge for credit; the nature of the commission; the characteristics of the consumer; the extent and manner of the disclosure; and compliance with the regulatory rules. On the facts, Mr Johnson’s unfair relationship claim was upheld on three principal grounds.

• Firstly, the Court considered that size of the undisclosed commission was sufficiently large that it was a “powerful indicator” that the relationship was unfair [327]. This was compounded by the fact that, as the customer was unaware of the commission, he could not raise any queries in relation to it. Whilst the Court cautioned against drawing analogies between different contexts in which section 140A of the CCA has been applied, it is clear that commissions and whether or not they are unfair form a spectrum and that at the upper end, commissions which formed 71.8% of the premium in Plevin v Paragon Personal Finance [2014] UKSC 61 and 55% of the total credit charges in Johnson were both considered unfair [325]. Decisions endorsed by the Court of Appeal in the PPI context have also indicated that commissions which form 50% of premiums paid may be unfair. 
• Secondly, the Court considered the commercial relationship between the lender and the car dealer. The documents presented to Mr Johnson included statements that the dealer would select the product that “best meets your individual requirements” and referred to a “select panel of lenders” it would select from [42]. However, unbeknownst to Mr Johnson, the agreement in force between the dealer and the lender required the dealer to offer all its business to the lender, which had a right of first refusal [43]. The Court concluded that in circumstances where the customer was given the false impression that the dealer had sought a range of offers and selected the most suitable, this amounted to “suppression of the truth” and on the facts indicated unfairness [333]. 
• Finally, the Court also considered whether any weight should be given the customer’s failure to read the finance documents in offsetting any potential unfairness. Although the claimant failed to read the documents provided to him, the Supreme Court said it was questionable the extent to which a customer could have reasonably been expected to read and understand the detail of such documents, especially where the customer was commercially unsophisticated, would not expect that a commission of this size would be payable and the relevant statements alerting him to the possibility of a commission lacked prominence [336]. The Court did not therefore consider that this factor militated against a finding of unfairness. 

Whilst the above contains a helpful steer on facts that may be relevant to section 140A CCA claims in the commission context the Court endorsed and emphasised the guidance laid down by Lord Sumption in Plevin v Paragon Personal Finance [2014] UKSC 61 and Lord Leggatt in Smith v Royal Bank of Scotland plc [2023] UKSC 34, that section 140A confers a wide discretion on the Court and that, when assessing unfairness, the test to be applied is broad, open textured and all relevant factors (not just those pleaded) must be taken into account – so the above is by no means an exhaustive list.  

Therefore, whilst these factors are likely to be of significant relevance to other consumer credit cases where commissions are subject to review (and will likely be considered as part of the FCA proposed redress scheme, in due course), limited guidance can be taken about what factors indicate an unfair relationship in non-commission cases. Some more general guidance was provided in Smith, where Lord Leggatt considered the list of factors by Hamblen J in Deutsche Bank (Suisse) SA v Khan [2013] EWHC 482 (Comm) to be a helpful starting point. These include factors such as: whether the term in question is commonplace / inherent in the nature of the product, whether there are sound commercial reasons for the term, whether it is a legitimate attempt by the creditor to protect its own interest, the scale of the lending and whether it is commercial or quasi-commercial in nature, the relative bargaining position of the parties and whether the terms are individually negotiated. However, like the factors to be considered in commission cases, these criteria are broad, require fact specific application and importantly draw no bright lines for companies grappling with how to avoid and defend CCA claims.  

For further information on the Motor Finance Judgment, please see our blog post: Divided Loyalties: the Supreme Court on motor finance commission disclosures. 

Faye Presland, Managing Associate in London

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The views and opinions expressed in this paper are the personal opinions of the authors and do not necessarily represent the views and opinions of Linklaters LLP.