It has long been common practice in the energy sector for brokers to receive commission from energy suppliers for the procurement of energy supply contracts. Non-disclosure or inadequate disclosure of commission arrangements to the customer places the supplier and the broker at risk of claims. In cases where neither the existence nor amount of commission is disclosed (fully secret commission cases), there is little room for the supplier or the broker to manoeuvre and the customer will likely have a claim for damages for fraud and potentially be entitled to rescind the agreement. In cases where the existence of the commission is disclosed but not the amount (known as half-secret commission), the position is more nuanced, requiring analysis of the scope of the broker's duty as to whether any liability arises.

The Court of Appeal has recently considered fully and half-secret commission in the context of lending in the Wood and Pengelly cases¹.These cases confirmed that payment of a fully secret commission amounted to bribery and, in those circumstances, for the claim to succeed no fiduciary duty was required, only a duty to provide disinterested advice, recommendation or information. In 'half secret' cases, a fiduciary relationship is required, and non-disclosure of the amount of commission may not be enough to establish a breach of duty - the information gap must be such that the party acquiring the product or service did not give informed consent to the commission payment (informed consent being necessary to displace a conflict of interest).

The recent case of Expert Tooling and Automation Limited v Engie Power Limited² provides an illustration of how these principles will be applied to commission payments in the context of energy supply contracts³.

Background

Expert Tooling and Automation Limited (Expert Tooling) was a tool manufacturer with industrial sites across the Midlands and Northeast. Engie Power Limited (Engie) supplied the electricity required for Expert Tooling's manufacturing process through a number of contracts. Engie used Utilitywise plc (UW) as a broker to procure these contracts. Expert Tooling was aware that UW would be paid commission in return for the brokerage but did not know how much (or how the payment would be structured). UW went into administration in 2019 and was dissolved in 2022. Expert Tooling subsequently brought a claim against Engie alleging that UW acted in breach of its fiduciary duties as agent to Expert Tooling in relation to its receipt of commission payments and that Engie was liable as accessory to that breach. Expert Tooling alleged that UW had breached obligations of "trust, confidence and single-minded loyalty", as the commission structure created an inevitable conflict of interest, where "UW's duty to obtain the best deal for the claimant [Expert Tooling] inevitably conflicted with its own interest in maximising its commission". Expert Tooling also made an additional claim that UW had breached the implied terms of its contract with Expert Tooling to act in good faith and in their best interests and that this breach had been induced by Engie. The court rejected all of Expert Tooling's claims and in doing so provided a useful analysis of the approach to commission disclosure in the context of commercial energy contracts.

Fiduciary duty

As the case was about half-secret commissions, liability would only arise if (a) UW owed a fiduciary duty to Expert Tooling and (b) the scope of that duty required UW to disclose the amount of commission.

It was accepted that UW, as broker, was the agent of Expert Tooling. However, Engie disputed that UW owed a fiduciary duty. Under the terms of their agreements, UW had the power to enter into contracts on behalf of Expert Tooling and had done so. The court had no difficulty in finding this kind of relationship between an intermediary and principal, where the intermediary had the power to affect the legal relations of its principal, came "within the scope of a fiduciary relationship". 

Having found that a fiduciary duty existed, the question for the court was whether the scope of the fiduciary duty owed by UW to Expert Tooling required UW to disclose the amount of commission it received or how it was structured. Drawing principles from previous half-secret commission cases, the court identified factors which defined the scope of the broker's duty, including the level of sophistication and vulnerability of the principal, as well as market expectation or relevant trade usage and customs.

On the question of sophistication, the court considered two previous contrasting cases. In Medsted Associates Ltd v Canaccord Genuity Wealth⁴, a half-secret commission case in the financial services sector, the court found no breach of fiduciary duty where the Claimants, two wealthy Greek citizens, were likely to be experienced investors, therefore indicating that a smaller scope of duty was owed to them, and not requiring disclosure of the amount of commission. In contrast, in McWilliam,⁵ the principals were financially unsophisticated, of modest means, with previous credit issues and considered vulnerable, which necessitated a fiduciary duty with a wider scope, requiring the amount of commission to be disclosed, otherwise the potential conflict of interest would not be evident to the principal.

Assessing the scope of the fiduciary duty, it is not only sophistication which defines the scope, but also the specifics of the principal's knowledge, set in the relevant context. On this question, the Judge considered the case of FHR European Ventures⁶ where a wide scope of fiduciary duty was found to be owed, requiring the disclosure of the amount of commission, not because the principal was vulnerable or unsophisticated (it was a financial institution) but because the amount of the commission was not an amount driven by custom and practice and was a "significantly larger percentage than would have been expected".

Deriving guidance from the principles in these previous cases, the Judge in Expert Tooling found that the need to advise on the amount of commission was not in the scope of UW's duties to Expert Tooling and, therefore, there had been no breach of duty. In reaching this conclusion, the Judge had regard to the fact that: (a) Expert Tooling was neither vulnerable nor unsophisticated – it was represented by two employees with experience in negotiating energy contracts; and (b) payment of commission to brokers was standard and had been addressed in an Ofgem factsheet which explained, where a principal did not make direct payment to an intermediary, the intermediary would be paid by the supplier and charged to the customer in the tariff it pays. The Judge also noted that, after being informed that commission was payable, all the representatives of Expert Tooling needed to do was ask the amount and how it would be calculated, but for whatever reason they did not.  

Informed consent / trade custom

If disclosure of the amount of commission comes within the scope of the fiduciary duty, breach of duty can be avoided if the principal (i.e. Expert Tooling) has given informed consent to the agent (i.e. Expert Tooling) to act on the principal's behalf notwithstanding the conflict of interests, or if "trade custom and usage acquit the agent from specifically seeking it". As the Judge had found disclosure was not within the scope of the fiduciary duty owed by UW, the question of informed consent was academic. In any event, the matters required to be considered to determine whether there is informed consent have significant overlap with those going to the scope of fiduciary duty such as vulnerability, sophistication and market practice. Given the knowledge of Expert Tooling's representatives, both of commission being paid and of the receipt of other services such as an account manager and a smart meter, in addition to the provision of electricity, "all of which it could not seriously have thought the defendant would pay for" and the fact that Expert Tooling was represented by sophisticated businessmen well-versed in energy contracts, the Judge considered informed consent was easily established. In addition, and importantly for other similar cases, the Judge considered the need for informed consent would be removed by the fact that adding commission to the unit cost was a "known industry practice" and Expert Tooling was "taken to know of the trade custom and to have consented to it".

Accessory liability and inducement of breach

Expert Tooling had tried to rely on previous authority in Hurstanger⁷ to argue that Engie, by paying the commission with the knowledge that UW was breaching its fiduciary duty, became an accessory to the breach. On this issue, the court, citing Twinsectra Ltd v Yardley⁸, held that for the defendant to be an accessory it also needed to be of a "dishonest state of mind". This was a much higher bar than having knowledge of the breach.

The court found "there was no evidence of dishonesty" and the defendant could therefore not be held to be an accessory.

The claim for inducement of breach of contract also failed, both on the evidence and because Expert Tooling had not put the required questions to Engie's witnesses. A term of "good faith" was not implied into the contract as a matter of law. Nor had there been any intention from Engie to induce UW to breach its contract with Expert Tooling. To the extent intention could be found from Engie turning a 'blind eye' to UW's conduct, the Judge did not consider a 'blind eye' had been turned given the terms of Engie's arrangements with UW and the fact that UW had told Engie on various occasions that it had disclosed commission arrangements to Expert Tooling.

Limitation period

The parties had entered into the most significant of the contracts (representing more than £100,000 of the £130,000 commission payment) more than six years before the claim was brought. The court therefore considered whether the claim was time-barred under Section 5 of the Limitation Act⁹. Expert Tooling tried to rely on the Section 32 exception, where if "any fact relevant to the plaintiff's right of action has been deliberately concealed from him by the defendant"¹⁰, the commencement of the ordinary limitation period could be postponed. The fact in question was the undisclosed amount of commission. The court held that the amount of commission and the way it was paid to UW was in fact "discoverable" by Expert Tooling. They could, simply, have asked UW for that information when they were first informed of the existence of the commission. UW had not "deliberately concealed" this fact by not bothering to inform Expert Tooling.

Conclusion

There are many commission-related cases going through the courts from a range of industries. This case provides a cautionary tale to commercial customers pursuing commission claims specifically in the energy market but potentially with wider application. The question of the customer's knowledge and sophistication will be key, as well as industry custom and practice – irrespective of whether the commission was specifically known to the Claimant. The court may well take a hard-line in 'half-secret' commission cases where a commercial (or otherwise sophisticated) customer knew commission would be paid but chose at the time not to seek further information. 

1. Wood v Commercial First Business Limited and ors [2019] EWHC 2205 (Ch) and on appeal to the Court of Appeal Wood v. Commercial First Business Ltd & ors and Business Mortgage Finance 4 plc v. Pengelly [2021] EWCA Civ 471.↩
2. Expert Tooling and Automation Ltd v Engie Power Ltd [2024] EWHC 374 (Ch).↩
3. The case was appealed from the County Court to the High Court, not due to the significance of the breach or the award (as the Claimant only sought £130,000), but rather to establish legal precedent for "a number of similar fact cases passing through the courts".↩
4. Medsted Associates Ltd v Canaccord Genuity Wealth (International) Ltd [2019] EWCA Civ 83.↩
5. McWilliam v Norton (2015) 1All ER 1026.↩
6. FHR European Ventures LLP v Mankarious [2011] EWHC 2308 (Ch).↩
7. Hurstanger v Wilson [2007] EWCA Civ 299.↩
8. Twinsectra Ltd v Yardley (2002) UKHL 12.↩
9. Limitation Act 1980, s5.↩
10. Limitation Act 1980, s32.↩