10th May 2023
Partner Nick McQueen, has acted on behalf of the successful defendant energy supplier to defeat the first energy commission claim against a supplier to hit the UK courts. Nick explains why The Dark Blue Pig v ENGIE Power [1] is a cautionary tale for would-be commission claimants.
Energy suppliers are being hit with allegations that they have paid hidden or secret commissions (or ‘bribes’) to brokers/agents/introducers at the expense of customers. The decision in The Dark Blue Pig v ENGIE Power will be a welcome decision for suppliers, and a clear signal that it’s not as easy to succeed in these commission claims as some firms are suggesting to potential claimants.
The promise of quick and easy recovery from commission payers and/or intermediaries, often with the promise of ‘no win, no fee’ (and, by implication, no risk) retainers, is far removed from the actuality of the decision in this case. In fact, the claimant in The Dark Blue Pig v ENGIE not only lost its claim and so failed to achieve any recovery, but also it was ordered to pay the supplier £20,000 in costs. The claimant may also have found itself facing liability for its own costs, to the extent these were not covered by any ‘no win, no fee’ agreement.
The following key points arise from the court’s decision in The Dark Blue Pig v ENGIE Power:
If a claimant can’t establish any one of these essential components at (a) – (e), its commission claim will fail. If a claimant succeeds in establishing (a)-(d) but can’t also establish (e), its claim against the supplier ought to also fail, but that issue has not yet been determined by the court. The claimant in this case failed on hurdle (d).
The likelihood of breach of any fiduciary duty owed by a broker/agent/introducer to a customer in a business-to-business case, and therefore of the claimant succeeding with a commission claim, is therefore low [3].
As the claimant found to its detriment in The Dark Blue Pig v ENGIE, pursuing a hopeless claim can result in an adverse costs order. Here the claimant had to contribute £20,000 to ENGIE’s costs. It’s worth noting that the value of its claim was less then £10,000, and so the claimant has ended up in a significantly worse position than when it started its claim. Not only did the claimant not achieve any recovery, but it is liable for the defendant’s legal costs and may face liability in respect of its own costs.
Suppliers and/or brokers/agents/introducers facing potential commission claims should take specialist advice as soon as a complaint or claim is intimated. Putting forward a robust defence at the outset and identifying the clear basis on which the customer was or ought to have been aware of the commission can be particularly useful in deterring these often vexatious claims.
The Dark Blue Pig v ENGIE Power concerned alleged secret commissions paid by ENGIE to an intermediary energy supply services broker in respect of gas and electricity contracts entered into by the claimant public house, The Dark Blue Pig. As is common practice, the pub had engaged the broker to find and enter energy contracts that would represent a ‘good deal’ for the pub. There was no straightforward written contract between the pub and the broker [4], but a letter of authority referred to (and thereby incorporated) the broker’s terms and conditions, which could be found on their website. The broker’s terms and conditions disclosed that commission may be received, but no specific disclosure, nor confirmation of amount, was made in respect of the particular commission paid by ENGIE. It was a matter of public record that the broker received commission payments from suppliers, and that was common trade practice in any event.
The court held that there was an agency relationship between the pub and the broker, and that the broker owed fiduciary duties and duties to be impartial and to give disinterested advice, information or recommendations to the pub. However, despite being a small business, the pub was not financially unsophisticated. And, although there was an the imbalance in size between the pub on the one hand and the broker/ENGIE on the other, that did not necessitate the imposition of additional disclosure requirements. The pub did not have to have particular knowledge of the energy supply market, but would know that the broker would not be working for free. The pub could have asked questions about the level of commission and, if it did not receive satisfactory answers in that regard, it could have engaged the services of a different broker. There was no breach of duty and no secrecy. The claim was dismissed in its entirety.
The claim had been for just over £9,000. The unsuccessful claimant was ordered to pay ENGIE’s legal costs in the sum of £20,000. Costs liability in this case therefore far exceeded the value of the claim.
Our Commercial Dispute Resolution lawyers are experts in handling all manner of commercial disputes. We regularly act for businesses in considering their risk profile and managing this type of commission claim. As well as helping clients to handle and defend an increasing number of commission claims, we help businesses to carry out health check reviews of existing contracts and relationships, including considering the extent to which commission has been disclosed, thereby helping to ‘future-proof’ against commission claims. Where necessary or advisable, we also help our clients to ensure regulatory compliance and to proactively change internal processes in order to minimise future risk.
Please contact Nick or Claire for further information or advice.
[1] County Court (24 February 2023)
[2] for example, the financial services sector
[3] And question whether publicly asserting financial vulnerability/unsophistication is an attractive prospect for any claimant business, in any event
[4] See our recent article on the risks associated with informal contracting