LegalAlpha Vol. 38 | This isn't about being 'unfair'—the 'real issue' the UK Supreme Court is looking at

*This article is intended to provide general information, including the author's personal views, regarding litigation funding and related systems, and is not intended to solicit, recommend, buy, or sell any specific investment.

—If that's what you thought, you're half right. But the other half is missing the point.

What is happening at the UK Supreme Court right now

Currently, the UK Supreme Court is hearing a case concerning
a 'secret commission' hidden in car loan agreements.

When buying a car, the dealer would introduce the customer to a loan and receive a reward (commission) from the financial institution in return.
Moreover, the amount and the structure of this were barely disclosed to the customer.

This may indeed have been an 'unfair' structure.
But—what the Supreme Court is looking at is
not whether it was unfair, but 'how it should be treated under the law'.

What is being questioned is not the 'act' but the 'structure'

The Supreme Court is not judging 'who was bad.'
What they are asking is this:

• How should such contract and reward mechanisms be positioned within the legal system?

• What obligations and responsibilities should be recognized in the relationship between the customer and the dealer?

• How much explanation is required to say it was 'disclosed'?

In other words, this is not about whether someone 'cheated,' but a battle of logic to define
'where the line should be drawn'.

The 'five issues' the UK Supreme Court is looking at

In this trial, the Supreme Court is attempting to make a clear judgment on the following five points:

1. Is a secret commission a 'civil bribe'?

The dealer received a reward from a financial institution in exchange for introducing a loan, and did not inform the customer of that fact—does this constitute 'bribery'?

What should be noted here is the meaning of the word 'bribery'.

In Japanese, there is an impression that 'bribery' equals a criminal offense, but in English law, the term 'bribery' can sometimes be used in the world of civil law as well.

However, in reality,

That is why the Supreme Court is currently debating the following:

• “Apart from criminal law, should a category of 'bribery' be recognized in civil law as well?”

• “If recognized, under what relationships and circumstances would it be established?”

This judgment is not just about labeling.

If recognized, the basis for damages will expand significantly.
Furthermore, it would become possible to pursue liability not only against the dealership that received the commission, but also
against the financial institution.

② Should the dealer have been 'loyal' to the customer?

The next point of contention is the relationship between the dealer and the customer.

In a normal sale, it is natural for the seller to prioritize their own interests.
However, in this case, the dealer was also in a position to introduce loans (financial products).

What the Supreme Court is asking here is,

This is the point.

If a fiduciary duty is found to exist,
the act of “recommending a loan that was convenient for them (high interest rate, high commission)”
could legally be considered a 'betrayal'.

In other words, what is being decided here is the line between
“where one is a mere intermediary and where one is in a position that should be trusted.”

③ How much disclosure is enough to say it was 'disclosed'?

This may look simple at first glance, but it is actually an extremely practical issue.

Many dealerships included the phrase “we receive a commission” in their contracts. But the Supreme Court is questioning whether that alone is sufficient.

• How much were they receiving?

• How was the commission determined?

• What was the relationship between the interest rate paid by the customer and the commission?

Without such information,
could it really be said that they 'knew'?

In other words, it is not just the 'presence of disclosure' that is being questioned, but
the 'quality of disclosure'.

This will determine the 'standard of duty to explain' for all financial products moving forward.

④ Can banks get away with 'not knowing'?

The next question concerns the party that paid the commission—that is, the bank's responsibility.

If a dealer received a secret commission, and the bank turned a blind eye while knowing about it,
that could be considered
dishonest assistance.

The logic is as follows:

However, this is also a concept with a high hurdle for establishment.
Here, the Supreme Court is attempting to delve into

• Did the bank 'truly' not know?

• Were they just pretending not to know?

an evaluation of this subtle gray zone.

⑤ Legally safe, but out if it's 'not fair'?

The final point of contention concerns the UK's Consumer Credit Act 1974.

This law contains a somewhat unusual provision.

In other words, even if the dealer fulfilled their duty to explain 'formally,' if it is judged that the structure was essentially one where the consumer
was at a disadvantage as an information-poor party, the contract could be overturned.

This concept of an 'Unfair Relationship' is, so to speak,
a 'judgment on the structure itself'.

This is a 'rewriting of the rulebook' for the UK as a nation governed by the rule of law.

That is why this is not just a simple auto loan lawsuit.
What the Supreme Court is asking now is—

• To what extent are business practices permissible as 'custom'?

• To what extent can we leave the structure of information asymmetry unaddressed?

• Where do the limits of the duty to explain and trust-based relationships lie?

These are questions about the update of the legal system itself.

And this judgment will have repercussions for banks, government agencies, and our society as a whole.

📘 Next Issue Preview (Vol. 39): 'Losing due to structure'—the pitfalls of the DCA mechanism

*This article is intended to provide general information, including the author's personal views, regarding litigation funding and related systems, and is not intended to solicit, recommend, or encourage the purchase, acquisition, or sale of any specific financial product or investment target. Furthermore, this article does not provide specific legal advice. We do not guarantee the accuracy or completeness of the information provided, and it is subject to change in the future. When making investment or legal decisions, please be sure to verify the information yourself and consult with a professional.