Secret Commission Claims on the Rise in Energy Broker Litigation

In the context of calls for wider regulatory reform, we are seeing (and being instructed on) a sharp rise in claims against energy brokers, particularly in instances where alleged secret commission has not been disclosed to suppliers and/or their client end-users.

Whilst each case is very much fact specific, we are commonly seeing it argued that suppliers and/or end-users have not been made sufficiently aware of commission arrangements and, as such, it is being alleged that energy brokers have acted outside of their fiduciary duties (as agents) and are obtaining a ‘secret profit.’

The law in this area is largely untested (albeit that is changing) and to-date we have had success in rebutting these claims which, in our experience, are often speculative. The area remains nascent yet has all the hallmarks of one which could expand rapidly. Energy brokers and their insurers would therefore be well advised to seek advice as to their risk profile and any contingency measures they might take to (i) manage any existing risk; and (ii) improve their resilience moving forwards in this developing area.

Role of energy brokers

Energy brokers are used, to a certain extent, like any broker to identify and obtain favourable contracts, leveraging their greater market penetration to achieve preferential energy prices for their end-user clients.

It is common practice for energy brokers to act upon pre-set levels of authority (of varying degrees), identifying and obtaining favourable contracts for the supplier, and in some instances then binding their clients (albeit in reality, in our experience, largely energy brokers ultimately act on direct instruction).

Energy brokers tend to be paid by suppliers by means of a commission built into the energy unit price. They do so in circumstances where, typically, the clients still (including the commission) obtain a preferential rates, whilst the provider benefits from payment and business promotion. In theory, at least, it is a ‘win-win-win’ scenario, and a model used by brokers in other industries.

Fiduciary duties

The underlying legal point in most of the disputes to date, is whether energy brokers act as true agents, thereby owing their clients fiduciary duties, which it is often argued to include a duty to disclose and pay receipt of commission to the principal contracting party.

Whilst if acting in a true agent capacity there might be some concern in this regard, in our experience, energy brokers (at least usually) rarely act in such a capacity and if there are energy brokers who are to be ‘true agents’ that would be the exception rather than the norm. Indeed, to date when we have challenged such allegations, we have been met with little by way of effective response.

Whether the court will ultimately agree does however remain to be seen and, as discussed below, each matter will be fact specific. Energy brokers/their insurers should seek advice if facing claims (actual or intimated) and they certainly should not be quick to accept that they act as agents.

Current trends – the rise in litigation

This area is developing and the potential for claims is unlikely to go away any time soon.

The courts have recently seen a rise in claims brought against energy brokers and suppliers on the issue of secret commission, and we only expect such claims to increase as market pressures continue to escalate.

Until recently these sort of claims had only been tested in the lower courts, but we have now seen the issue given airtime in the High Court in Expert Tooling and Automation Ltd v Engie Power Ltd [2024] EWHC 374 (Ch). In that case the client knew there would be a commission but not the amount. Whilst the High Court did find there was a fiduciary duty, on the facts, it did not extend to disclosing the amount of the commission. The Judge was clear that each case would be fact specific, but the early signs are that, certainly absent an element of dishonesty, the courts will be slow to allow these claims. One would have thought that there will be an awareness of policy/‘floodgate’ considerations at play albeit,particularly with a new government agenda, such considerations are always liable to change.

Perhaps in response to not getting much traction on these sorts of claims, we have noticed a move towards group action directly against energy providers, which could in turn lead to contribution claims from providers to energy brokers. We will need to see how this plays out, but this is an area to watch closely, as it could prove more fertile ground for claims, particularly where brokers have documented contractual relationships with suppliers.

Our expertise

Weightmans have a long track record of working with energy companies, dealing with mis-selling claims (which have a number of similar traits) and have a market-leading ESG offering which means that we are ideally placed to deal with claims arising in this area and/or work with energy brokers/their insurers to take preventative measures now to improve business reliance should this area develop rapidly in the future.