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Voluntary announcement: Judgement from UK Court of Appeal on motor commission cases
FIRSTRAND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1966/010753/06)
JSE ordinary share code: FSR
ISIN: ZAE000066304
NSX ordinary share code: FST
LEI: 529900XYOP8CUZU7R671
(FirstRand or the group)
Voluntary announcement: Judgement from UK Court of Appeal on motor commission cases
FirstRand informs its shareholders that today the UK Court of Appeal published a judgement on two
cases (Wrench and Johnson) relating to motor finance agreements that form part of the MotoNovo
back book that resides in the London branch.
Previous disclosures from FirstRand on this matter
- The UK's Financial Conduct Authority (FCA) is reviewing the historical use of discretionary
commission arrangements and sales by the mainstream lenders in the UK motor finance
market. Most of the vehicle loans originated within the scope of the FCA review reside in the
London branch. The FCA has indicated next steps in the process will be communicated in
May 2025.
- In the meantime, claims relating to commission arrangements continue to be heard in the UK
county courts, in the main instituted by claimant law firms (CLF's). London branch has been
successful in defending the large majority of these claims at trial, as the courts consistently
found that commission payment disclosures met regulatory and legal requirements and
finance arrangements with customers were fair.
- The group continues to believe that its historical practices were compliant with the law and
regulations in place at the time. However, the group has also acknowledged that uncertainty
persists whilst the FCA process runs its course and legal risk remains as individual cases
continue to be tested and taken on appeal. This uncertainty was a contributing factor to the
group's decision to raise a pre-tax accounting provision of R3.0 billion for the year to 30 June
2024.
Background to the cases relating to the judgement published today
Following losses in the lower courts, Messrs Wrench and Johnson, through their CLF's, appealed their
cases to the UK Court of Appeal.
In both the Wrench and Johnson matters, the finance agreements signed by the customers disclosed
that commission may be payable to the motor dealer in the terms and conditions. The group believes
this was in compliance with legal and regulatory requirements at the time.
The judgement
In the Wrench matter, even though the payment of a commission was disclosed in London branch's
terms and conditions, and London branch had imposed contractual obligations on the dealer to
disclose the commission to the customer, the court found that this was still inadequate to ensure the
customer was aware that a commission was paid.
In the Johnson matter, it was accepted that London branch had disclosed commission would be paid
to the motor dealer. However, the court found that the disclosure was inadequate for Mr Johnson to
give informed consent and should have gone further, and beyond regulatory requirements.
The judgement also states that the judges in the lower courts were wrong to find that the motor
dealers have no fiduciary duty of loyalty to their customers.
FirstRand's position
FirstRand is concerned by the judgement and does not agree with its findings.
The UK Court of Appeal found that London branch intentionally included the commission disclosure
in the terms and conditions in a way that it would be unnoticeable to the customer and appears to
have taken steps not to make the customer aware of the commission.
FirstRand believes that the commission disclosures in both the Wrench and Johnson agreements
were in accordance with all legal and regulatory requirements. The court however found that
disclosure should have gone beyond that.
FirstRand also does not agree with the judgement's finding that motor dealers owe a fiduciary duty
to a customer (like a trustee or a director of a company might do). Lenders and motor dealers have
always operated on the basis that the dealer functions on an arm's length basis and has a primary
objective to sell a motor vehicle, and therefore does not owe a duty of loyalty to the customer.
This judgement finds that a fiduciary duty suddenly and retrospectively now likely applies to all
providers of credit at point of sale which has far-reaching and materially negative implications for the
motor finance industry and broader consumer finance sectors in the UK. Given the importance of
this issue, FirstRand believes these matters should now be heard by the UK Supreme Court which
only considers matters of law with wider public importance.
FirstRand has therefore immediately sought permission to appeal to the UK's Supreme Court on the
following grounds (amongst others):
- Motor dealers do not owe customers fiduciary duties or any other duty around providing
advice, recommendation, or information on an impartial basis.
- When lenders make disclosures regarding the possibility of payment of commission in the
terms and conditions of their finance agreements signed by the customer, it cannot be said
that the commission has been hidden or kept secret.
FirstRand has engaged with its regulators in both the UK and South Africa to explain its legal position
and its view on the far-reaching negative consequences of this judgement. The group will continue to
defend its position and undertake to update shareholders as and when it is able to provide further
clarity.
Issued by FirstRand Investor Relations: sam.moss@firstrand.co.za
Sandton
25 October 2024
Sponsor
Rand Merchant Bank (a division of FirstRand Bank Limited)
Date: 25-10-2024 02:00:00
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