Supreme Court to reveal auto decision on Friday 1st August

Considerable uncertainty is swirling round the possible outcome of the Supreme Court’s appeal hearing on motor finance commission, which we now know will be announced on Friday 1st August. Media reports suggest the Treasury may seek to intervene if the judgment upholds in its entirety last year’s Court of Appeal decision.

In October 2024, the Court of Appeal ruling on commission disclosure requirements, informed customer consent and intermediaries’ fiduciary duty sent shockwaves through the asset finance industry, with some commentators suggesting it could also have widespread ramifications in other sectors.

The judgment concerned three cases, two involving FirstRand Bank/Motonovo, and the other Close Brothers, where the judges said dealers had failed either partially or completely to disclose commission payments on finance agreements.

An appeal went to the Supreme Court at the end of last year and was heard this April, with judgement set to be delivered on 1 Augst. This is the last date in the legal calendar for the current term, before the recess which begins on 1 August and ends on 1 October.

Judgement will be given at 16.35, which is after the financial markets are closed and before one of the summer’s busiest weekends. The Supreme Court usually hands down decisions on Wednesday mornings, and the change to the normal schedule suggests the timing is related to concerns about the possible impact of the decision on the shares of leading lenders.

Treasury plans

The Guardian newspaper is reporting that the Treasury is developing contingency plans which would see Chancellor Rachel Reeves seek to introduce primary legislation to overturn the Supreme Court ruling, should it uphold the Court of Appeal decision in its entirety.

This is because of fears that lenders to the motor finance sector could face multibillion-pound claims for redress, which some analysts have put as high as £44 billion, reducing the capacity for some lenders to fund the sort of business investment the government is encouraging.

Close Brothers has already set aside £165m to cover a compensation scheme, while Santander UK has earmarked £295 million and Lloyd, which has exposure via its Black Horse subsidiary, some £1.15 billion.

Earlier this year, while at the World Economic Summit in Davos, Reeves made comments to journalists about the need to avoid what she termed “unfair windfalls” to borrowers, saying payouts should be “proportionate to any harm done” and that “having a vibrant car industry and motor finance industry in the UK is important”.

In order to address historic agreements on lenders’ back books, any legislation to address this would need to be retrospective, which is highly unusual. It would also require MPs to be recalled to Westminster as the most recent Parliamentary session ended on July 22.

There are believed to be many thousands of claims currently stayed in lower courts awaiting the Supreme Court’s verdict, and the Financial Conduct Authority (FCA) has said it will consult on an industry-wide compensation scheme as soon as the ruling is handed down. That consultation is set to take six weeks.

Future developments

In response to the media reports, a Treasury spokesperson said: “We don’t comment on speculation. We want to see a balanced judgment that delivers compensation proportionate to losses that consumers have suffered and allows the motor finance sector to continue supporting millions of motorists to own vehicles. It is now appropriate to let the appeals process run its course.”

Commenting on the speculation, Wayne Gibbard, Partner and Head of Financial Services at Shoosmiths, and AFC’s legal adviser, said:

“As can be seen from the wide speculation, there is an expectancy and a desire to seek certainty and direction on next steps. It is clear that ‘all options’ remain open to protect the market and the wider sector, to ensure this continues to function for the benefit of everyone, especially consumers.”

“Whatever the outcome of the Supreme Court (and whenever that maybe), all participants will need to consider what the next steps are and the future shape of our marketplace. We are pleased to support our clients in getting ahead – for those surfing heads leaving for summer – catch the ripple before it becomes a wave.”

Edward Peck, AFC CEO, said: “The industry is on tenterhooks awaiting the result of the Supreme Court appeal, and the latest news underlines how significant the ruling will be to our sector.

“At AFC we stand ready to provide updates and guidance as soon as the picture becomes clearer.

“Asset Finance Connect and Shoosmiths will be running a webcast, sponsored by Odessa, and a workshop immediately following any announcement from the Supreme Court. Anyone interested in attending these events should contact me: edwardpeck@finance-connect.com”

Further insight from Shoosmiths can be found at: https://finance-connect.com/six-priorities-for-motor-finance-firms-ahead-of-likely-fca-redress-scheme/