The Court of Appeal rules that half-secret commissions in the energy market are recoverable but some form of dishonesty remains a factor for supplier liability

The practice of energy companies paying commissions to brokers, without the amount of that commission being specifically told to customers (which the law refers to as a ‘half-secret’ commission), had been endemic in that industry for years and well known to regulators. In such cases, customers knew or ought to have known that a fee was being paid by the energy company to the broker, though the details are often buried deep in terms and conditions. By contrast, a ‘fully secret’ commission arises when the customer was not made aware at all that a commission would be paid.

The prevalence of half-secret commissions has led to many claims being brought by SMEs and micro businesses, seeking repayment of the commissions from the energy companies; the mixed results of those claims different county courts indicated that the law required clarification.

The Court of Appeal has now provided some clarification as to what a claimant must prove in order to succeed in a claim for a half-secret commission against the energy supplier. In so doing, from the customer’s perspective, it has given with one hand and taken away with the other.

The Court concluded that the broker did not satisfy its obligation to its customer merely by informing the customer that a commission would be paid (but without providing detail about how the commission was structured) but that in order to make the supplier liable for this non-disclosure, the customer must demonstrate that the supplier turned a blind eye to whether the broker was telling the customer about the amount of the commission and how it was being recovered or was otherwise dishonest.

Background and Decision of the High Court

In Expert Tooling and Automation Limited v Engie Power Limited, the customer entered into five electricity supply contracts with Engie Power Limited (“Engie”). These contracts were arranged through a broker. Unbeknownst to the customer, Engie paid the broker a commission that was incorporated into the unit price of the electricity. While the customer was aware that the broker would receive a commission, it was unclear whether they were informed of the amount and that this commission would be added to their energy costs.

The customer issued proceedings against Engie, alleging that Engie was liable for procuring the broker’s breaches of its duty to the customer and claimed the amount of the commissions paid by Engie.

The High Court dismissed the claim, finding that the broker’s duty did not extend to informing the customer of the amount of the commission. The High Court said that in any event it would not have found that Engie was guilty of procuring the broker’s breaches of fiduciary duty because this would have required proving dishonesty on Engie’s part and there was no evidence of it.

Court of Appeal Findings

The Court of Appeal allowed the customer’s appeal, finding that the Judge had wrongly limited the scope of the broker’s duty and erred in concluding that the customer had given informed consent simply because it could have requested details of the commission. It further held that Engie could not depend on the customer’s sophistication and expertise because the relevant materials had not been provided to it.

The customer also sought permission to appeal on the basis that the Judge had incorrectly required proof of dishonesty for Engie’s liability. The customer further attempted to introduce a new ground, arguing that Engie acted dishonestly because it knew that the broker owed duties to the customer and was aware of the commission payments, without needing to show that Engie understood this constituted a breach due to a lack of informed consent.

The Court of Appeal confirmed that dishonesty is an essential element of the liability of the energy company for assisting in a breach of the broker’s duty.

Key Takeaways from the Court’s Discussion

1. The Court of Appeal’s judgment in Expert Tooling was a success for energy customers pursuing claims against brokers. Energy customers whose brokers received half-secret commissions, and who were not provided fairly detailed information about those commissions, may well have a claim against their brokers for the commissions. Such claims will be particularly attractive where the brokers are substantial and well-resourced (unfortunately, this is often not the case).
2. Establishing liability of the energy company however will be a more difficult affair. Such a party needs to have been dishonest, which requires demonstrating (at least) that it was aware that informed consent had not been obtained or at least turned a blind eye to that possibility.
3. In order to establish ‘blind eye’ dishonesty, it will be insufficient that the energy supplier simply failed to make inquiries about informed consent. The customer must prove that the energy supplier had a firmly grounded suspicion that no informed consent had been given and deliberately chose not to investigate the suspicion. Applying the test from Twinsectra v Yardley [2002] 2 AC 164, an energy supplier’s conduct must amount to turning a blind eye in circumstances that most people would regard as dishonest. Compelling evidence on this point will be crucial.

If you are or represent a business energy customer, and believe you may have a claim against either a broker or supplier as described above, please contact David Greene or any member of the Class Action Litigation team.

 

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