Hopcraft V Close Brothers: Implications For The Invoice Finance Industry

At the end of this Summer, the Supreme Court delivered its anticipated judgment in the joint appeals in Hopcraft v Close Brothers Limited [2025] UKSC 33.  The decision focused on motor finance, but the Court’s findings have far broader implications for all sectors in which brokerage services are available, including the invoice finance industry.  The decision has come as welcome news across the UK finance world, though the story of compensation in relation to broker commission seems likely to rumble on for some time to come.

The Facts

The three matters before the Supreme Court involved Close Brothers, the London branch of FirstRand Bank, and the London Branch of FirstRand trading as MotoNovo Finance.  All three cases followed the same familiar pattern: the customer wished to purchase a car from a dealer the assistance of finance; the customer provided information about their finances to the dealer; the dealer passed this information on to a lender to obtain an offer (mostly involving hire-purchase agreements); the dealer relayed the offer to the customer; and the customer accepted.  Unknown to the customers, each lender had agreed to pay a commission to the dealer.

The main facts of each of the cases were in summary as follows:

1. In Hopcraft v Close Brothers, Ms Hopcraft wished to purchase a second-hand Fiat 500 from a dealer, priced at £8,530.00. The dealer offered a finance package from Close Brothers.  She signed an HP agreement with her father, as co-borrower, under which credit of £8,280.00 was advanced.  In secret, Close Brothers had agreed to pay £183.26 in commission to the dealer.  Ms Hopcraft was told nothing about that, or even the prospect of commission being paid.
2. In Wrench v MotoNovo, Mr Wrench acquired two cars under separate finance agreements, the first being a used Audi TT and the other a second-hand BMW 3 Series. In each transaction, he was assured by the dealer that it would work to get the best rate for him from its panel of lenders.  Nestled within the terms of the HP agreements was a statement that commission may be payable by the lender to the broker who introduced the transaction, the amount of which could be confirmed on request.  Mr Wrench had not read the terms and so was unaware of this.  His HP agreements were worth £5,995.00 and £9,750.00, and the dealer got commissions of £180.00 and £409.00 from each.
3. In Johnson v FirstRand, Mr Johnson entered into a finance agreement in respect of a Suzuki Swift. Finance of £6,399.00 was provided, with a total repayment amount of £9,422.20, on materially the same terms as Mr Wrench.  The package consisted of an HP agreement and a personal loan.  Mr Johnson signed a further document created by the dealer in which it said it would find finance “which best meets your individual requirements” – although it did note that the dealer may receive commission from the lender and that products would be sourced from a select panel.  However, the arrangement was that FirstRand would get the right of first refusal, so in reality a deal would not (or would not necessarily) have been drawn from a panel, select or otherwise.  The total amount of commission payable was by far the highest of the three cases, at £1,650.95.

Each of the customers brought a claim against the lenders, claiming that the commissions amounted to bribes or secret profits which were received by the dealers in their capacity as fiduciaries.  They each claimed for the equivalent sum of the commissions from the lenders under the tort of bribery.  In two claims – those brought by the Hopcrafts and Mr Johnson – alternative equitable claims were advanced for dishonest assistance on the part of the lenders in relation to the dealers’ receipt of the commissions (the assistance being in relation to the dealers’ alleged breach of fiduciary duty).  Each customer also brought claims under s.140A of the Consumer Credit Act 1974 (“the CCA”), on the basis that the commissions made the finance agreements ‘unfair relationships’.  Ultimately, through the appeals process, only Mr Johnson’s claim under the CCA made it to the Supreme Court.

The Decisions in the County Court

In a stark illustration of the inconsistent approaches taken by judges at different levels to such claims: Mr Wrench was successful before the Deputy District Judge but failed on appeal to the Circuit Judge, though his CCA claim was remitted to a District Judge for reconsideration; Mr Johnson failed at first instance before the Deputy District Judge and on first appeal before the Circuit Judge, except his claim under the CCA went back to the District Judge; and the Hopcrafts failed in front of the Deputy District Judge and their first appeal to the Circuit Judge was transferred up to the Court of Appeal.

The Decision of the Court of Appeal

The claims were heard together by the Court of Appeal.  In previous decisions of the Court of Appeal over the past twenty years, certain trends had emerged in relation to secret commissions.  In Wood v Commercial First Business Ltd [2022] Ch 123, the Court held that it was not a prerequisite for a finding of bribery that the recipient of the payment owed a fiduciary duty to the claimant.  Instead, it was enough if the recipient in the circumstances owed the claimant a duty to provide information, advice or recommendations on a ‘disinterested’ basis.

In Hurstanger Ltd v Wilson [2007] 1 WLR 2351, it was held that a distinction should be made between what have become known as ‘fully secret’ and ‘half secret’ commissions.  As the name implies, the difference is where there has been partial disclosure of the fact of, or (as in Hurstanger itself) the potential for payment of, a commission.  Where the commission was half secret, the full range remedies would not be available as of right to the client: a claim would lie for payment of the commission, but the availability of any other remedies would be a matter of the court’s discretion.

In the present cases, in response to the bribery and dishonest assistance claims, the Court of Appeal held that, when providing credit brokerage services, the dealer incurred both a disinterested duty and also a fiduciary duty to their customers.  This followed because the dealers, while selling the cars, had undertaken to search for and provide the customers with a deal which was both competitive and suitable for their needs.  In the Hopcrafts’ and Mr Wrench’s cases, the commissions were entirely secret and so fully engaged the tort of bribery.  Each lender therefore had to repay the amount of the commission received.  The Court also found that Mr Johnson’s relationship with FirstRand was clearly unfair for the purposes of the CCA, primarily due to the extent of the commission involved.

The Supreme Court Decision

The Court of Appeal’s decision came as a shock to the finance industry, and also to the Financial Conduct Authority (which was granted permission to intervene by the Supreme Court) which had held the view that the unusual facts of most motor finance transactions were not enough to give rise to either a disinterested or fiduciary duty so as to engage the tort of bribery.  The Supreme Court also allowed representations to be made by the National Franchised Dealers Association, given the wider industry implications.  The UK Government – which had concerns for the banking world at large if the appeal were to fail – was not allowed to intervene.

It had often been commented that the decisions in Wood and Hurstanger (and various others) were difficult to reconcile.  The Court of Appeal in Close Brothers case therefore had something of an unenviable task, bound as it normally is by its own previous cases.  However, in Close Brothers case the Supreme Court swept aside the essential reasoning in those earlier decisions.  Disagreeing with Wood, it held liability in bribery can only arise where a genuine fiduciary duty exists; a mere ‘disinterested duty’ is insufficient.  The Court also held that Hurstanger was wrongly decided in relation to disclosure, reasoning that partial disclosure is never sufficient to absolve a fiduciary who has received a secret commission.  Disclosure of every fact is unnecessary, but there must be disclosure of the material facts so that informed consent of the principal can be given.

The Supreme Court held that each of the three parties in the given transactions (the customer, the dealer and the lender) were engaged at arm’s length from each other, each pursuing their own commercial objectives: the dealer was selling the car for a profit; the lender was seeking to provide finance on terms which enabled it to make a profit; and the customer wanted to acquire a car at an affordable price and on good terms.  None of these basic facts gave rise to the same tenor of duty which exists between – for example – a solicitor and his client.  As the Court put it, “no reasonable onlooker would think that, by offering to find a suitable finance package to enable the customer to obtain the car, the dealer was thereby giving up, rather than continuing to pursue, its own commercial objective of securing a profitable sale of the car.”

The result was that the lenders’ appeals in respect of bribery were upheld and so the customers’ claims dismissed.  However, Mr Johnson’s surviving claim under the CCA was upheld.  The sheer level of commission in his case was a powerful indication of unfairness.  The dealer had also misstated the nature of its relationship with FirstRand by failing to mention the commercial tie and right of first refusal.  The fact that Mr Johnson had not read the documents did not work against him, as he was found to be commercially unsophisticated.  The Court therefore ordered the repayment of the commission, plus interest.

Impact on Invoice Finance

The decision in the Close Brothers case is also welcome news to the invoice finance sector.  Depending on the facts of any particular case, it appears that invoice finance brokers are unlikely to be held to be fiduciaries of their customers.  It is instead much more likely that a broker would now be regarded as being engaged at arm’s length with the lender and the client, with each pursuing their own commercial objectives.

Interestingly, the Supreme Court also held that the car dealers were not acting as agents of the customers in negotiating their finance, in the true legal sense of agency (rather than the colloquial sense of someone who does something for another).  This is significant because an agent in the true sense is a fiduciary.   Again, depending on the facts of a given case, it seems unlikely that invoice finance brokers will be agents of their customers simply because they undertake to locate a facility for a customer, whether on a short- or long-term basis.

It may be thought that anyone who approaches an invoice finance broker will appreciate that their services will not be offered for free, meaning that they cannot later complain if they discover that commission was paid.  In Medsted Associates Ltd v Canaccord Genuity Wealth (International) Ltd [2019] EWCA Civ 83, an investment broker was found by the Court of Appeal to be a fiduciary, but his duties were held not to include disclosure of commission.  The trial judge found that the principals were wealthy and that it was likely that they were experienced investors.  As the role of the broker was to introduce them to potential financiers, and because they were not paying for the broker’s services, the judge found that “they must have assumed that [the broker] was receiving payment from the financial institution”.

The decision in Medsted in part rested on a finding of the commission being half secret, and so whether the link between sophistication and disclosure will survive the decision in Hopcraft is seriously open to doubt (at least in relation to bribery claims; it remains a relevant factor in claims under s.140A CCA, where applicable).  However, Medsted was not referred to by the Supreme Court in its judgment.  It may be that such questions are addressed when the Supreme Court delivers judgment in Expert Tooling v Engie Power – a case on commissions in the commercial energy sector, where it is often argued that commercial occupiers must have known that some form of commission would be paid.

However, for now, the message from the decision in Close Brothers case is clear: if the recipient of a commission is held to be a fiduciary of their client for any reason, only full disclosure of the commission arrangements will do.  It would therefore be prudent for all invoice finance brokers to give full disclosure of the commission that will be earned from a given transaction and obtain their clients’ informed consent to the arrangement. It is also recommended that invoice financiers set out the commission arrangements in its offer letter/finance agreements giving full transparency to its client.

Contact our Invoice Finance Team.