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Commission claims: Landmark High Court authority favours energy supplier defendant

The Topline

Walker Morris has acted on behalf of the successful energy supplier defendant in the first business energy commission claim to be heard in the High Court. The decision provides welcome High Court authority and clarity on key issues arising on commission claims in the energy sector.”

Nick McQueen, Partner, Commercial Dispute Resolution

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Energy sector commission claims: The story so far

Energy suppliers will be all-too aware of the current trend for claims management companies to encourage customers to pursue energy suppliers with claims that hidden or secret commissions have been paid to brokers/agents/introducers at their expense.

Walker Morris’ energy disputes experts have acted on behalf of the successful energy supplier defendant in Expert Tooling and Automation Limited v ENGIE Power Limited [1] in the first business energy commission claim to be heard in the High Court. This decision provides much needed authority and clarity in respect of key, determinative issues in business energy commission claims.

The landmark judgment should be welcomed by defendants and would-be claimants alike – both for its clear and comprehensive summary of the law in this emergent field, and as a cautionary tale against commencing ill-founded energy commission claims.

Over the past year, Walker Morris Partner Nick McQueen, Commercial Dispute Resolution specialist and energy disputes expert, has acted on behalf of successful energy supplier defendants in county court cases The Dark Blue Pig v ENGIE and Leicester Indoor Bowls and Social Club v Drax, with the support of Laura Singleton, Tayla Boote and Sean Gallagher.

As our earlier briefings explain, those cases have been helpful in establishing the essential elements of a commission claim, and in demonstrating application of the law in the energy sector context.

The team’s successes to date have culminated in the Expert Tooling ruling from the High Court, which is now the leading authority in business energy commission claims.

In Expert Tooling the Judge transferred the claim from the County Court to the High Court in order to give the County Court some authoritative guidance. When denying the Claimant permission to appeal, the High Court Judge described the conflicting County Court judgments as “unfortunate”. This High Court authority should now avoid such unfortunate conflicting judgments going forwards.

What are the key takeaways from Expert Tooling?

The Expert Tooling judgment is important as it authoritatively settles the common law position on business energy commission claims. Key points to note include:

Liability: scope of fiduciary duty and informed consent

  • In a ‘half secret’ commission claim (such as this, and perhaps the majority of energy sector commission claims), liability only arises where there is a fiduciary duty [2] and there is no informed consent given by the customer to the payment of commission. As to what amounts to informed consent, where the principal knows that the agent will look to the other party in the transaction for remuneration (for example where the principal is not paying the agent directly or as a result of the custom of trades or usage), the principal can’t object on the ground that it didn’t know the precise amount of any commission. Where there’s no such custom/usage, the principal’s knowledge may need to be greater for the agent (and potential fiduciary) to avoid a breach. That may particularly be the case where the principal is vulnerable and unsophisticated. If a claimant is aware that the broker/agent/introducer is or may be receiving a commission, it will struggle to prove that it did not give its informed consent to the broker/agent/introducer receiving a commission, and therefore to prove any breach of fiduciary duty.
    1. Where the customer in a business energy commission claim is a company, a court considering whether the customer gave informed consent will look at the company as a whole. It will consider the directing mind and will of the company, not the knowledge of the individual entering into the contract.
      1. The fact that commission is added to the unit cost is known industry practice. That obviates the need for specific informed consent because the principal is taken to know of the trade custom and to have consented to it.

      In Expert Tooling, like in The Dark Blue Pig and Leicester Indoor Bowls and Social Club, the scope of the broker’s fiduciary duty to the customer did not extend to disclosing the amount of a commission payment.

      Accessory liability

      • Importantly, citing Supreme Court and House of Lords precedent [3], the High Court confirmed that, even if a claimant could establish a breach of fiduciary duty by its broker agent, for the energy supplier to be liable as an accessory to that breach, the claimant must also establish that the accessory was dishonest. There’s a very high bar when it comes to establishing dishonesty and mere knowledge of the breaching agency would not suffice.
        1. The claimant, in Expert Tooling, alternatively attempted to fix the energy supplier defendant with liability for inducing a breach of contract. The High Court helpfully clarified that a necessary element of such a claim is the proving of the mental element of intention to induce a breach. Whilst intention can involve deliberately turning a blind eye to breaching conduct and proceeding regardless, again the bar for establishing intention is high.

        In Expert Tooling, there was no evidence of dishonesty, nor of intention to induce a breach of contract.

        Limitation

        • Like other legal actions, commission claims are time-limited [4] so that they cannot be brought more than 6 years from the date on which the cause of action accrued. In such cases, that date is the date on which the energy supply contract was signed. Many commission claims concern contracts that were signed more than 6 years ago, and the High Court confirmed that the 6 year limitation period that runs from the date of the contract shall only be disregarded if there is evidence of a deliberate intention on the part of a defendant energy supplier to conceal the facts of the contract (namely, the amount of commission). It also clarified that a deliberate intention to conceal is distinct from recklessness as to concealment, and that the latter would not suffice.

        In Expert Tooling, as will be the case in other energy sector commission claims, the customer knew that commission was payable. The judge opined that, had the claimant asked for detail surrounding the commission, there was “no reason to believe it would not have been told”. The fact that the question was not asked and that the amount of commission ultimately remained undisclosed did “not amount to an intentional concealment of those facts”, and at no other point was there evidence of such an intention.

        The High Court’s incisive clarification around the limitation period should provide an early and immediate cut-off for many of the potential claims facing energy suppliers today – especially many of the claims brought in relation to numerous contracts within large portfolios.

        Commission claims: How Walker Morris’ experts can support you

        This landmark High Court judgment will deliver some much-needed clarity and stability in relation to commission claims litigation – particularly within the energy sector. The case builds on Dark Blue Pig and Leicester Indoor Bowls and Social Club. It may persuade existing claimants to discontinue their claims against energy supplier where there can be no basis to allege dishonesty – especially those based on contracts signed more than 6 years ago, and it may discourage would-be claimants and claims management companies from issuing further ill-founded claims.

        Nick McQueen and Walker Morris’ energy sector energy disputes team have unparalleled experience, expertise and success in this area and can bring their unique breadth of knowledge and practical insight to advice provided to their clients. Nick and the team regularly act for businesses facing energy sector commission claims. As well as helping clients to handle and successfully defend an increasing number of claims, they help businesses to carry out health check reviews of existing contracts, operational processes and relationships, thereby helping to ‘future-proof’ against commission claims.

        Please contact Nick McQueen or Laura Singleton for further information, training or advice.

         

        [1] [2024] EWHC 374 (Ch)

        [2] A ‘fiduciary’ is someone who undertakes to act for or on behalf of another in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is an obligation of loyalty: a fiduciary must not act for its own benefit without the informed consent of its principal. (The principal, in these cases, is the customer/claimant). Even if a person acting as a broker in relation to energy supply contracts is, at law, an ‘agent’, that is not the same as, nor conclusive to, the agent being a fiduciary.

        [3] Twinsectra Ltd v Yardley (2002) UKHL 12 and Royal Brunei Airlines Sdn Bhd v Tan (1995) 2 AC 378

        [4] Limitation Act 1980

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        Laura
        Singleton

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