Following on from our recent blog (The secret's out on energy broker commissions – have you been affected?), which explained the issue of "secret commissions" in energy contracts, we bring you some key issues and developments in this area.
Many commercial customers were targeted by brokers while energy prices were at their highest, persuading them to enter long term fixed contracts to provide certainty in a volatile political and economic climate. Sectors that typically rely on high energy usage may have been particularly targeted, such as the care, real estate and hospitality sectors.
In many cases, undisclosed commissions are linked to energy usage. This means that the longer the term of the contract is, the higher the energy usage will be and thus, the more commission that is paid to the broker. Despite energy prices having now come down, commercial clients are still being forced to pay unnecessarily high bills, putting undue pressure on businesses that are already struggling to cope in the current climate.
Broker Duty
In December 2023, the County Court considered a claim against energy supplier, Drax Energy Solutions Limited, in which it was alleged that the supplier had paid undisclosed commissions to a broker, who had arranged its energy contract with a small business. The court confirmed that a broker does owe a duty of trust and confidence to its commercial customer, on the basis that those customers "repose trust and confidence" to negotiate a deal that is in their best interests.
Customer Sophistication
The courts will consider whether a business owner was sophisticated enough to have been expected to ask questions about commission to their broker, supplier or even the regulator, OFGEM. The Judge in the Drax case commented:
"Those who run Clubs and small businesses have to be on their guard and should be alive to the possibility of a conflict of interest in these circumstances"
Business owners should therefore be acutely aware of this issue and careful about considering the terms of contracts before agreeing them.
Fully and Half Secret Commissions
There is a distinction between 'fully secret' and 'half secret' commission claims. For example, if the customer was told by the broker that they would receive a commission but just not how much, or if the customer ought reasonably to have been aware of the commission, then this would be a 'half-secret' commission claim. If a customer is not told at all that the broker will receive a commission, this would be a 'fully secret' commission claim. Which type of claim may have an effect on the relief available to a claimant.
Limitation
There are time limits for pursuing a claim. Statute sets out deadlines by which different types of claims must be issued and generally, a claimant must issue a claim against a defendant within six years of the cause of action complained of. If a claim is issued after a limitation deadline has passed, it will usually be time-barred.
In November 2023, the court in Canada Square v Potter considered whether an undisclosed commissions case could be pursued beyond the initial six-year deadline. In that case, Canada Square had consciously concealed information about the existence and amount of secret commissions from Mrs Potter, which meant that she couldn't, with reasonable diligence, have discovered that information until much later. For that reason, Mrs Potter was entitled to use section 32 of the Limitation Act 1980, which postpones the limitation deadline in cases of fraud, concealment, or mistake, to pursue a claim which would otherwise have been time barred.
This is good news for claimants with potentially historic cases who could not have known about secret commissions until more recently. The decision has wide significance to various areas in which secret commissions have been highlighted as an issue, to include the energy sector. However, commercial customers should treat the matter with caution and seek independent legal advice as soon as possible to protect their position, given the strict deadlines for pursuing these claims.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.