The full judgement can be found on bailii, although we must ask you to be aware that it can be technical and perhaps confusing unless you are legally minded. We will therefore summarise below.
Not everyone enjoys reading case law and the technical details, so let’s start with the decision and how we believe it will affect your claim, before going further into the details.
The Court of Appeal in the separate claims of Wood v Commercial First Business and Business Mortgage Finance 4 PLC v Pengelly found that hidden commissions between the broker and lender would be treated by the Court as a bribe and special form of fraud. With that the borrower may put the original contract into rescission, which essentially means the revocation, cancellation or repeal of the agreement. This puts both parties back to were they were prior to the agreement being made.
How the decision affects your claim
This Court of Appeal Claim is slightly different to car finance claims in that it was on the lending of a mortgage rather than car finance or PCP. Nevertheless our interpretation is that the principles are exactly the same, the broker / car dealer arranging the finance would hold the same duty of care to the borrower and that the same remedy of rescission for hidden / secret commissions would be available.
We will therefore pursue your claim on the basis that all fees that were unjustly received, including interest, commission and any other fees should be repaid to you.
Our view is that the only stipulation for the lender to reply upon is that of “counter restitution”. This essentially means that as the restitution of the rescission will take away all of the unjustly gotten gains and benefits from the lender, the borrower must also give back their gains and benefits. To be clear, this does not mean the vehicle, which will remain completely unaffected. Our position and understanding of the law is that all this means is that the initial loan is paid back in full. It may be that the lender will contend that some if not all of the interest should still be payable.
Here is a basic example of a claim if you borrowed £10,000 for a vehicle purchase, but at the end of the contract you have paid £16,000 in total:
- Initial Loan – £10,000
- Arrangement Fee – £2,000
- Interest – £4,000 (of which, £1,500 was paid to the dealer in hidden commission)
- Total Repaid – £16,000
The initial loan of £10,000 must be returned to the lender as the counter-restitution. With rescission of the contract our claim on your behalf will be for the arrangement fee and the interest to include the hidden commission, which will be a total of £6,000. We will then seek to claim interest on the £6,000 from the date that you paid it. The reason we are claiming the compensation, is that these are unjustly gotten benefits due to the fact that the dealer hidden commission from you i.e. did not confirm with you that they would receive a commission for selling you the product from the lender. The Courts take this as a bribe and special form of fraud.
It is possible that the lender will argue that some if not all of those individual amounts are still payable and ultimately these may be the subject of negotiations which can be agreed by you, via the Financial Ombudsman Service (FOS) or ultimately determined at Court.
Let’s say we are successful in negotiations with the lender for the claim and the full amount is agreed and we also recover interest, to keep things simple for the example at £500. This will be total compensation recovered of £6,500.
Chan Neill Solicitors fees will be 30% + VAT (currently 20%) of the compensation recovered, which will total fees of £1,950 + VAT of £390, totaling £2,340. The SortMyCash fee will be payable by Chan Neill Solicitors for the processing, handling and introduction of the claim.
You will therefore receive a payment of £4,160.00.
More About The Court Of Appeal Claim
This was an appeal against two High Court Decisions with similar circumstances of hidden commission. The Court of Appeal found that a fiduciary relationship is not a necessary pre-condition to relief in respect of an undisclosed commission paid to an agent. What this effectively means for your claim is that the lender and car dealer / broker cannot simply use the argument that there was no fiduciary relationship (meaning the car dealer was not working under trust and confidence on behalf of the lender) for relief in respect of an undisclosed commission. It is only necessary to demonstrate that the broker was obliged to provide advice or a recommendation on a disinterested and impartial basis “it is the duty to be honest and impartial that matters”. With respect of your claim, when a broker is recommending financial products to a customer it is prerequisite that they must be impartial and have the interest of the borrower at heart.
Additionally within the claim the Court of Appeal clarified their stance on hidden / secret commission and “half-secret” commission. The Court of Appeal upheld that it was not enough for the broker to state that they “may receive commission” and if that is the full extent of their disclosure then this will still be classed as entirely secret. The determination for a “half-secret” commission is where the broker has confirmed that they do receive commission within their terms but do not expressly provide details of the commission to the borrower including how much the commission was for. It is still possible that in “half-secret” commissions the remedy could be rescission. However, this would be at the discretion of the Court and in our view the threshold would be more difficult, although not impossible to overcome, as the Court would not view these as a bribe and therefore a special form of fraud.
There is little doubt that this Court of Appeal claim offers very strong, persuasive arguments both to the Court and to the Lender to settle matters in the Claimant’s favour. Whilst the claims are not 100% directly relating to car finance claims, the principles would in our view remain exactly the same. The broker / car dealer arranging the finance had a duty of care to you, should have been working in a disinterested way and if they were being paid commission, they had the duty to disclose this as this would have had a material impact on whether or not a borrower would take out the finance. This would have had even more of an impact on cases were the car dealer / broker had freedom to change interest rates to directly increase their level of commission.
In our view, we have an excellent chance of recovering compensation and even bringing about rescission to the agreements on car finance / PCP claims in which commission was paid to the dealer / broker and not disclosed to the customer.