Court finds that the relationship between a consumer and Black Horse was rendered unfair when Black Horse paid to a car dealer a commission which was paid pursuant to a discretionary commission model

S v Black Horse Limited

Factual Background

S entered into a Credit Agreement (“the Agreement”) with Black Horse Limited (“BH”). The Agreement required S to pay:

• An initial payment of £252.73
• 46 monthly instalments of £252.73
• A final instalment of £6,1220.00

Interest payable under the Agreement was charged at rate of 12.17% amounting to a stated APR of 12.9%

The Agreement came to an end on 31 July 2019 and that is the date the relationship between S and BH ended for the purposes of sections 140A-C of the Consumer Credit Act 1974 (“unfair relationship provisions”).

The Agreement was arranged by the Dealer Broker (“DB”). DB provided S with multiple finance offers that S considered too expensive before sourcing the vehicle purchased and offering the Agreement to S, who accepted.

S alleged that unknown to them, DB was paid commission in the sum of £1,718.02, net of a discount charge paid by the DB of £197.63 (“the Commission”). BH says the Commission was disclosed within an initial disclosure document concerning the Agreement (“the Adequate Explanation”).

S invited the Court to determine two issues (BH had previously disputed limitation but confirmed on the morning of the hearing that the issue was not being pursued):

1. Was the payment of the Commission a secret? If so, did the payment of the Commission constitute a secret commission in law?
2. If the payment of the Commission was half-secret, did the payment of the Commission nonetheless render the relationship between S and CFP unfair?

Submissions for S

1. There was no evidence that an Adequate Explanation was, in fact, given to S. However, S accepted that he had signed documents which referred to the Adequate Explanation.
2. S not paying a fee for the Agreement was not determinative when dealing with the question of whether the Commission was a secret, or not. The non-payment of a fee does not amount to disclosure.
3. If the Court was satisfied that the Commission was not disclosed and so secret, DB was required to provide disinterested advice, information, or recommendation to S.
4. DB giving information to and presenting the Agreement with BH to S was sufficient and meant DB had impliedly represented it as a suitable deal for S.
5. Even if the court determined that disclosure had been given, meaning the commission was only held-secret, DB owed to S fiduciary duties as it was tasked with finding a suitable finance product from its panel of lenders and in doing so and putting forward the Agreement, DB impliedly represented that the Agreement was competitive which, in turn, brought about the repose of trust from S.
6. If the court found the Commission was half-secret, its payment was still unfair in this case as it involved a significant imbalance of knowledge, as S was deprived of the opportunity to potentially negotiate a lower monthly price had he been told that the Commission was linked to the rate of interest/APR charged under the agreement. Not being told this information created a classic situation of unfairness as set out by Lord Sumption in Plevin.

Submissions for CFP

1. The Commission paid to DB by CFP was not secret as it was disclosed to S via the Adequate Explanation.
2. DB was under no duty to provide disinterested advice, information, or recommendation.
3. There was no fiduciary relationship as S had been told in the Adequate Explanation that DB was not giving independent advice.
4. There was no requirement on DB to disclose the amount of Commission or that it was linked to the APR in the Agreement.
5. No unfairness in BH paying DB Commission.

Judgment

The Agreement was essentially a tripartite arrangement – BH supplied the vehicle to S, but it was purchased by BH and then loaned to S.- As a result of S entering into the Agreement, BH paid DB £1,718.02 net of a discount charge payable as DB reduced the interest rate payable by D below the flat rate.

The Judge concluded that the Commission was not a secret as the Adequate Explanation document was, on balance, given to S.

There was no fiduciary duty in this case, relying on the explanation document that stated DB did not provide independent financial advice.

Accordingly, there was no need for impartiality – DB was in business for itself and there was no duty to provide disinterested advice, information, or recommendation. The Judge therefore concluded that DB was not S’s fiduciary.

However, the Judge concluded that an unfair relationship did exists because of:

1. The significant disparity in the degree of financial knowledge and expertise of S and DB;
2. At the time, BH and DB knew Commission would be paid.
3. They also knew that the interest rate under the Agreement could be influenced by DB which directly impacted upon the Commission that DB received.

The Judge awarded the sum of £1,718.02 returned to S, plus interest.

S beat his own Part 36 offer and therefore was awarded the additional benefits set out in CPR 36.17(4) including, the 10% additional amount, interest on damages at 7% from the date of expiry of the relevant period, interest on costs at 9% for the period following expiry of the relevant period, as well as indemnity costs from the date of expiry of the relevant period.