Ruling sheds light on energy supplier and broker liability for ‘secret’ commissions

Daniel Gardiner and Katie Hancock of Pinsent Masons were commenting after the High Court dismissed claims by manufacturing business Expert Tooling and Automation Limited (Expert Tooling) relating to commission arrangements under five energy contracts that Utilitywise, a now dissolved company, had brokered on its behalf with energy supplier Engie Power Limited.

It is common in the energy market for businesses to procure energy supplies via a third-party broker. Where that happens, it is typical for the broker to earn commission on the deals it refers to energy suppliers.

In this case, Utilitywise earned commission based on the unit price charged by Engie to Expert Tooling under five energy contracts between the companies. Initially the rate of commission was set at the rate Utilitywise had proposed; Engie latterly imposed a cap on the commission Utilitywise could earn. Expert Tooling claimed that more than £130,000 had been added to its energy bills as a result of the commission arrangements Utilitywise negotiated with Engie. Expert Tooling's witnesses said that while they were aware Utilitywise would receive a commission, they were not aware of the level of commission or that it would be paid as a supplement on the unit price.

By its claim, Expert Tooling sought to recover the £130,000 amount from Engie. Its claim was rooted in its argument that Engie was an accessory to breaches of fiduciary duties that it said Utilitywise had owed it.

Specifically, Expert Tooling claimed that Utilitywise had breached obligations of “trust, confidence and single minded loyalty” by putting itself in a position where the two companies’ respective interests conflicted. It alleged there was a conflict of interest because Utilitywise’s duty to obtain the best deal for it conflicted with its own interest in maximising its commission – and that this conflict was inevitable because of the commission structure in operation.

Engie, however, challenged Expert Tooling's claims. It argued that Utilitywise had not owed Expert Tooling fiduciary duties – or that if it had, there had not been a breach of those duties by Utilitywise and that, in any event, Utilitywise had Expert Tooling's informed consent to the commission structure operated. Engie further argued that even if there had been such a breach of duties owed by Utilitywise, it was not an accessory to that breach. Engie further denied Expert Tooling's separate claims that it had induced any breach of good faith and best interest obligations Expert Tooling argued Utilitywise had been under contractually.

In considering the case, the High Court had to consider a number of matters – including whether the claims Expert Tooling raised in respect of one of the energy contracts were time-barred. Those claims were brought more than six years after the events to which they related – a six-year limitation period applied. However, the court, among other things, considered whether the start of the limitation period could be said to have been delayed owing to alleged deliberate concealment of the commission arrangements.

The Limitation Act postpones the commencement of the ordinary limitation period where “any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant”. It further provides that “deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty”. 

The High Court found that the amount of commission and how and by whom it would be paid was “discoverable” by Expert Tooling – it only had to ask Utilitywise for that information when it had been informed that commission would be charged in respect of its Engie contracts.

Having found in Engie’s favour on the limitation issue in respect of one of the contracts, the court went on to consider the substance of the rest of Expert Tooling's claims.

In doing so, the court said that it is “within the scope of the fiduciary relationship” that a broker informs a commercial energy customer that it receives commission. It said it would be “wholly impermissible” for the broker not to disclose what would amount to “a secret profit”.  However, the scope of that duty had to be considered.

The court considered the extent to which two senior managers at Expert Tooling could be said to be unsophisticated or vulnerable, which has a bearing on the extent of information a broker would have to disclose about commission arrangements to meet its fiduciary obligations. In this respect, the court compared the case of Expert Tooling to others and determined that it was outside of the scope of Utilitywise’s duties to inform Expert Tooling of the amount of commission and that the commission would be added to the unit cost.

The court held, in any event, that the information Expert Tooling had been given by Utilitywise was sufficient to establish that Expert Tooling had given its informed consent to the commission arrangements, observing that “the fact that commission was added to the unit cost was a known industry practice”. It followed from the court’s reasoning that Expert Tooling would not have succeeded in a claim against Utilitywise for breach of fiduciary duty, had such a claim been brought.

The court went on to consider whether Engie could be liable as an accessory to breach of fiduciary duty, had there been such a breach. The court considered the law on accessory liability and found that, in the absence of any evidence of dishonesty on the part of Engie, there could be no accessory liability.

The court held that Expert Tooling’s claim that Engie had induced a breach of contract on the part of Utilitywise would also have failed, because there had been no intention on the part of Engie that Utilitywise breached its contract with Expert Tooling, and nor had Engie turned a blind eye to any breach.

Hancock said: “The decision affirms previous county court judgments, where the courts recognised that many commercial energy customers, who are informed commission may be charged but not given further details, have the means to establish those further details for themselves. For example, both the proprietor of a public house and a volunteer at a bowls club have been considered sufficiently sophisticated, meaning it was not held to be within the scope of the relevant broker’s duties to inform them of how the commission charged was calculated. Such customers can also be taken to have given informed consent to the payment of commission. The decision in this case affirms that reasoning.”

Gardiner added: “The decision goes one step further than previous county court decisions in finding that, in the absence of any dishonesty on the part of the energy supplier, the supplier would not be an accessory to any breach of fiduciary duty by the broker. In light of this decision, any claims brought by customers against energy suppliers in respect of so called ‘secret commissions’ will be extremely challenging.”

Hancock and Gardiner concluded that the High Court’s ruling would be welcomed by energy suppliers and brokers alike.