Improper inducement or legitimate distribution fee? The UK Supreme Court’s landmark ruling clarifies the rules on intermediaries that are common to the supply chain of almost all financial services.
Executive Summary
What is new: The Supreme Court’s (Court’s) landmark ruling limits the scope of application of insufficiently disclosed commission claims under common law to narrowly defined fiduciary relationships. The ruling confirms that full disclosure of all material facts to the principal is necessary to avoid liability for commission payments to a fiduciary intermediary.
Why it matters: The Court’s ruling clarifies the fundamental principles of an intermediary’s fiduciary duties that are common to the supply chain of almost all financial services.
What to do next: Insurance brokers and other fiduciaries may wish to consider conducting a review of their commission arrangements to ensure these are adequately disclosed and consented to.
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In Hopcraft, Johnson & Wrench,1 the Court considered whether lender commissions earned by car dealers in brokering consumer car loans were improper inducements. In its 109-page judgment, the Court sought to cut through complexity in the Court of Appeal’s case law that had threatened to create new categories of duties on intermediaries and an expansive scope of the law of bribery. (See our 22 May 2025 client alert “A Deep Dive Into Intermediary Remuneration as the UK Supreme Court Considers Its Legality.”) The Court specified:
The standard for establishing a fiduciary relationship is high. The Court confirmed that the hallmark of a fiduciary relationship is the duty of “single-minded or undivided loyalty” and that outside of the established categories of fiduciary relationships (such as an agent, trustee or company director), there is a relatively high bar for a fiduciary duty to be assumed. In particular, fiduciary relationships are unlikely to arise in the commercial context where “it is normally inappropriate to expect a commercial party to subordinate its own interests to those of another commercial party.” On the facts, car dealers were not fiduciaries when acting as credit brokers in arranging car financing for their customers. The financing arrangement was simply an ancillary service to the sale of the vehicle.
Civil bribery arises only in relation to payments to fiduciaries. The Court clarified that bribery will only be engaged where the intermediary owes a fiduciary duty to the principal, overturning the Court of Appeal’s finding that bribery could also exist where the intermediary owes a lower “disinterested duty” to provide information, advice or recommendations on an impartial basis.
Liability exists absent full disclosure. Only full disclosure of all material facts to the principal is a sufficient defence to breach of fiduciary duty or a claim for civil bribery. (There is no longer a distinction between secret and partially disclosed commissions.) What facts are “material” depends on the sophistication of the client, and the size and nature of the payments.
In terms of the wider impact of the ruling on other financial services intermediaries, intermediary brokers commonly act as agents in the financial services sector, in particular insurance where brokers act as agents for the client insured. This raises the question of what level of disclosure brokers must make to a client when the broker also receives payments from the insurer. The Court’s restatement of appropriate disclosure is not new, but reaffirms that the disclosure rules in Chapter 4 of the Insurance Conduct of Business Sourcebook (ICOBS) may not be sufficient to avoid liability. The Court restated the general principles on full disclosure to say that: (i) it is the same for bribery and breach of fiduciary duty; (ii) it means full disclosure of all material facts; and (iii) notice of the existence of the payment may be sufficient for full disclosure provided the type and amount of the fee is within industry norms. By extension, new forms of nonstandard commission or unusually high fees may not be sufficiently disclosed by only a passing reference to the possibility of payments in the broker’s terms of business. To avoid liability for improper payments, ensuring that the insurance broker has identified the amount (or calculation method) of the fee in the client documentation (i.e., the slip) may be necessary.
High Bar for Establishing a Fiduciary Relationship
The Court reaffirmed the existence of the classic fiduciary relationships — such as agent/principal, trustee/beneficiary, director/company — and clarified that other (ad hoc) fiduciary relationships could be assumed only where the circumstances showed the intermediary had subordinated its own interests to the principal (a “duty of single-minded or undivided loyalty” [78]). For a fiduciary relationship to arise, there must be an express or implied “assumption of responsibility by the fiduciary to act exclusively on behalf of the other in the conduct of the other’s affairs” [100]. The Court found that most commercial relationships did not exhibit this “altruism”; for example, a wine waiter or shop assistant advising on which product will best suit a customer represents an arm’s-length customer service and not a fiduciary relationship [110]. Cases of non-fiduciary bribery could fall within the scope of a range of other torts, such as deceit, conspiracy, inducement of breach of contract and causing loss by unlawful means [206].
Car Dealers Are Not Fiduciaries
The Court found that the car dealers did not owe a fiduciary duty to customers when acting as a credit broker in arranging a customer’s car financing, and the claims against the lenders in equity for dishonest assistance in the breach of fiduciary duty therefore failed. The Court observed that the “typical features” of the hire purchase transactions were “incompatible” with a fiduciary duty [276] because:
The dealer was at all times an “arm’s length party to a commercial negotiation pursuing its own separate interests,” and this status was “irreconcilably hostile to the recognition of a fiduciary obligation” [277].
The dealer gave no express undertaking or assurance to the customer that the dealer was putting aside its own commercial interests [270].
Financing is an ancillary service the dealers could sell to consumers alongside the sale of the car — similar to extended warranties, a roof rack or a tow bar — rather than a distinct and separate service in its own right (there was no separate contract or reward for the service). “[Vehicle financing] was simply a means whereby the dealer could make use of its knowledge and contacts in the car finance market to oil the wheels of what was for [the dealer] essentially a sale transaction from start to finish” [269].
The dealer did not have authority to act for the customer nor act as the consumer’s agent when negotiating the finance package [271], and in fact in certain respects the dealer typically intermediated between the customer and the lender as the agent of the lender in relation to the finance package [272-273]. This occurred despite promises that the dealers would seek to select the best-suited financial product for the customer from a panel of providers, and this limited disclosure beyond in some cases the potential existence of a commission and the right to ask for more details.
Dependency and vulnerability on the part of the customer are not indicative of a fiduciary relationship in the absence of a promise of loyalty [274].
Narrowed Scope of Civil Bribery
After a detailed examination of the case law on fiduciaries and the scope of the tort of bribery, the Court overruled the Court of Appeal to decide there had been no bifurcation in the law. The tort of bribery is only engaged in relation to inducements paid to a fiduciary; a mere “disinterested duty” to provide impartial information, advice or recommendations is not enough. And because the Court found no fiduciary duty between the dealers and the customers, the claims against the lenders pursuant to the tort of bribery also failed.
Sufficient Disclosure Negates Bribery/Unlawful Secret Profit
The Court’s ruling was in part anticipated for a number of questions on the appropriate nature of disclosure in a fiduciary relationship. The fact patterns in the cases on appeal involved different constellations of nondisclosure or partial disclosure: (i) in some cases, there was no disclosure; (ii) in some, lenders required the broker to make disclosures (in fact the disclosure was insufficient); (iii) in some, brokers noted in precontractual provisions the possibility that commission “may” be paid (without prominence or any indication of amount); and (iv) in many of the cases, customers said they had not read the terms or been told orally about the commission payment. Equally, the question arose whether equity or the common law imposed a higher duty of disclosure than the relevant financial conduct regulation.
Since the Court found the car dealer relationships were not fiduciary, the Court did not need to discuss the appropriate standard of disclosure. But the Court went out of its way obiter to discuss the appropriate standard, finding that only full disclosure of “all material facts” [211] could provide informed consent to a payment to negate the risk of bribery/secret profit in both common law (for bribery) and equity (for breach of a fiduciary duty). In doing so, the Court overruled the previous distinction in the case law between secret commissions and partially disclosed commissions [216-225].
But what amounts to full disclosure is context-dependent. Where the amount was reasonable given business norms, disclosure of the existence of a commission, but not the amount, was sufficient. Conversely, abnormally high commission was not sufficiently disclosed by merely advertising its existence. The Court held [216]:
[W]hat amounts to disclosure of all material facts depends on the circumstances of the particular case: not every fact which could be disclosed is necessarily material in a particular context. The significance of the payments being “reasonable” was that the disclosure of their existence gave the [principal], in the circumstances of that case, all the information [the principal] required in order to understand the nature and extent of the [fiduciary’s] interest.
The Court favourably cited Dunne v English2 (which ruled that unless all material facts are disclosed, disclosing that a director is interested in a property sale is insufficient), Imperial Mercantile3 (which ruled that, if the size of commission is outside business norms, disclosing that a director will earn a commission is insufficient) and Anangel4 (which ruled that the principal’s knowledge only of the existence of collateral benefits earned by the fiduciary was sufficient; the specific amount was not a material fact since the amount was reasonable in size) [211-215].
Unfair Relationship Under Consumer Credit Regulatory Rules for Consumer Credit Agreements
In relation to the one unfair relationship claim that the Court was asked to consider, the Court held that the relationship between the claimant and the lender was unfair under section 140A of the Consumer Credit Act 1974 (CCA) on the particular facts of the case, and ordered the return of the commission plus interest on the basis that:
The size of the commission was high — as much as 55% of the total cost of the financing [323].
Pre-transaction documentation purported to offer a panel of providers while concealing that the dealer was, in fact, tied to just one lender who had a right of first refusal on potential loans [330].
The customer was commercially unsophisticated, and the clause on the potential payment of commission to the broker in the lender’s terms and conditions should have been displayed more prominently, and the customer’s attention should have been expressly drawn to it [336]. The Court also noted that the failure to disclose the existence of the commission was a breach of the FCA’s Consumer Credit Sourcebook (CONC) [329].
The Court emphasized that whether a relationship is unfair under the CCA is a “highly fact-sensitive exercise” [279] that will turn on the circumstances of each customer. This ruling therefore leaves the door open for statutory claims under the CCA that the relationship between the customer and the lender was unfair.
Financial Redress Scheme
On 3 August 2025, the UK Financial Conduct Authority (FCA) announced that it would launch a consultation by early October 2025 on an industry redress scheme to compensate motor finance customers who were treated unfairly. The FCA proposes that the scheme will cover commission arrangements that incentivised dealers to set higher interest rates (discretionary commission arrangements (DCAs), which were the original focus of the FCA’s review), and will consult on whether non-DCAs should also be included in light of the Court’s finding of unfairness in Hopcraft, Johnson & Wrench, which confirmed that liability is not limited to the nondisclosure of DCAs.
The FCA estimates that the value of the redress scheme could be between £9 billion and £18 billion, involving mis-sold loans dating back to 20075 and an average recovery per agreement of £950. The FCA proposes that the scheme would be operational in 2026. The FCA said that its consultation will cover how firms should assess whether the relationship between the lender and borrower was unfair for the purposes of the proposed scheme and, if so, what compensation should be paid. A UK Parliament committee has since questioned the proportionality of the redress scheme and the risk of a chilling effect on car finance.6 In principle, customers can choose not to participate in a redress scheme and pursue a claim via court proceedings.7
Parallel Actions Under Competition Law
Whether subsequent customer actions (stayed pending the Court’s judgment and the FCA’s announcement on next steps) will continue remains to be seen. This answer may not be straightforward, since some claims are based on different causes of action, including a class claim pending before the UK’s Competition Appeal Tribunal against several motor finance providers, which alleges that the use of DCAs is anticompetitive (rather than unfair).8 This claim at least in part overlaps with the FCA’s potential redress scheme, which will also target DCAs. The class representative may want to keep this parallel claim alive depending on the scope and value of any redress scheme payouts.
Wider Impact on Broker/Commission Arrangements in Other Industries
While the Court’s ruling focuses on car finance, the principles the Court set forth have a wider relevancy across for other sectors that use intermediary remuneration models.
Common law bribery will only apply where the intermediary owes a fiduciary duty (not the narrower disinterested duty) to the principal, which limits the scope of application of insufficiently disclosed commission claims. Allegedly secret commission claims, such as buildings insurance premiums charged to leaseholders, have been threatened in other sectors. The Court’s confirmation on the narrow scope of the tort of bribery may render these claims unviable.
Outside of the well-established categories of fiduciary relationships, there is a relatively high standard for a fiduciary duty to be assumed. The circumstances of each broker arrangement will need to be examined on the facts of each case, but a fiduciary duty is unlikely to arise in an arm’s-length commercial context.
Once a fiduciary relationship is established, parties will need to determine whether the customer provided informed consent to the broker’s commission. The question of appropriate disclosure is common to many financial services intermediaries, including insurance brokers who may receive payments from insurers as well as their client insured.
Consistent with Chapter 4 of the FCA’s ICOBS, intermediaries’ terms of business refer to the existence of fees and the right to request disclosure. But the question arises whether fees should be itemised for the insured in terms of amount or method of calculation. The lesson from Hopcraft, Johnson & Wrench is that this remains a fact-dependent assessment based on the size and customary nature of any fee, as well as the sophistication of the parties. A case to watch is the pending appeal in Expert Tooling,9 where the Court will consider the appropriate level of disclosure by an energy agent broker. Moreover, there remains the risk that both the insurer and intermediary are potentially liable if disclosure is insufficiently made to the customer. Insurers and intermediaries should ensure that nonstandard fees are sufficiently identified and, particularly if unusual in size or nature, should be disclosed in quantum or calculation method, in order to satisfy the standard for disclosure of all material facts.
Professional support lawyer Elizabeth Malik contributed to this article.
For further information, please contact:
Sebastian J. Barling, Partner, Skadden
sebastian.barling@skadden.com
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1 Hopcraft v Close Brothers Limited; Johnson v FirstRand Bank Limited; Wrench v FirstRand Bank Limited [2025] UKSC 33, 1 August 2025.
2 (1874) LR 18 Eq 524.
3 (1873) LR 6 HL pp. 68, 171, 176, 189.
4 [1990] 1 Lloyd’s Rep 167.
5 The FCA wants the redress scheme to cover credit agreements dating back to 2007 to ensure the scheme is comprehensive, but is discussing with the UK government the best way to achieve this given that the FCA did not assume responsibility for consumer credit regulation until April 2014.
6 Letter from the House of Lords Financial Services Regulation Committee to the FCA, 8 August 2025.
7 The FCA is in parallel examining carrying out a market study on the use of premium finance products in the UK. The FCA’s initial findings raised concerns, among other issues, about commission-driven pricing, which demonstrates a broader focus on the impact of intermediary remuneration arrangements on consumers. (See our 1 August 2025 client alert “FCA Premium Finance Study: Concerns Raised but No Regulatory Changes Proposed”).
8 Case No. 1598/7/7/23, Doug Taylor Class Representative Limited v MotoNovo Finance Limited and Others, stayed until 31 October 2025.
9 Expert Tooling and Automation Limited v Engie Power Limited, judgment pending.
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