The Court has held that when examining claims regarding the payment of an undisclosed commission to a broker in the context of an asset finance transaction, the counterfactual position should be considered.
That is, what would the customer have done had they been provided with the full details of the commission and the impact this would have had on their overall costs of finance.
This case potentially makes it harder for lenders/brokers to defeat such claims as the focus has been shifted away from the disclosure made by the lender or broker, to what the customer would have done had they had the full facts. It is further support for the position that only full disclosure of the commission arrangements at the outset may be sufficient to defeat such claims.
BECKETT V BMW FINANCIAL SERVICES (GB) LTD T/A ALPHERA FINANCIAL SERVICES
Beckett purchased a car under a credit agreement. Alphera was the lender, Auto Union Finance was the broker and there was also a dealer involved in the transaction.
The broker and Alphera had an agreement whereby commission was paid by Alphera to the broker. The rate of commission was linked to the APR on a particular transaction.
In this case, the APR charged was 14.1%, which provided for 16.1% commission to be paid.
Whilst Beckett was informed that a commission might be paid to the broker, the full details were not disclosed, in particular that the commission and APR were linked.
The terms and conditions of the Hire Purchase Agreement included the following:
We may pay commission to a supplying dealer of other intermediary who introduces a customer to us.
A second document (the pre contract credit information document) included the following:
If you have been introduced to us (ALPHERA Financial Services) by a motor dealer or other intermediary, they may receive a payment from is for the introduction.
The motor dealer or intermediary may only work with a limited number of lenders. Their introduction of you to us or one of our finance products does not amount to independent financial advice.
Beckett brought a claim arguing that:
1. the relationship between Beckett and Alphera was unfair under s140A of the Consumer Credit Act 1974; and
2. there had been breaches of the CONC Rules.
At first instance, despite the Judge finding some of the CONC rules had been breached by the dealer, the court found that the relationship was not unfair. This decision was overturned on appeal and the relationship was found to be unfair.
KEY ISSUE ON APPEAL
Beckett argued that at first instance, the Judge had applied the incorrect test as to whether the relationship was unfair and whether Beckett suffered loss.
The Judge had only considered what Beckett did when they were ignorant of the true position. Beckett argued that the correct test was to consider what the customer would have done had the true position as to the discretionary payment of commission been disclosed to them and expressly brought to their attention (as required following the case of Wood v Commercial First Business  EWCA Civ 471) (the "Counterfactual Test").
FINDINGS ON APPEAL
The court held there is clear authority that the Counterfactual Test should be applied when examining these circumstances - Plevin v Paragon Personal Finance Ltd  UKSC 61.
It is necessary to examine not what the customer did in ignorance, but what they would have done if the full details of the commission, and the impact this has on the amount paid for the finance been disclosed.
In this case, the judge at first instance had made a finding that Beckett would not have entered into the finance agreement had the relevant information been disclosed. In light of this, the appeal succeeded and it was ordered, under s.140B of the CCA, that the lowest available rate from the Defendant should be the rate that should apply to the Hire Purchase Agreement.
- This case presents a potential shift in focus from whether the relevant disclosures in respect of commission are made, to what the customer would have done had the disclosures been made.
- This case involved the linking of commission to the rate of interest. There may therefore be scope to distinguish this case if commission is not linked to interest.
- This case suggests that only full disclosure at the outset may be sufficient to defeat claims, particularly when an unfair relationship is alleged under s.140A of the CCA. For example, in this case, the court concluded that the table which showed how the rate of commission is calculated should have been given to the customer to allow them to make a fully informed decision.
If you have any questions about this case or the issues it discusses then please do not hesitate to contact us.