A couple of somewhat contradictory cases have recently appeared in court, focussing on energy deals agreed by businesses, via brokers, who had received a commission from the relevant energy companies, without the knowledge of the end business customers involved. The commission is generally added to the businesses’ energy bills, often in a fairly inconspicuous way, and can, according to Ofgem (the Regulator) account for up to 50 per cent of the total amount payable. Since October 2022 the Regulator has started to close this loophole, and it’s now a requirement for brokers to declare their commissions to clients in micro-businesses. A non-domestic customer is defined as a microbusiness if they:
- employ fewer than 10 employees (or their full time equivalent) and has an annual turnover or balance sheet no greater than €2 million; or
- use no more than 100,000 kWh of electricity per year; or
- use no more than 293,000 kWh of gas per year.
Northern Ireland is regulated separately by UREGNI – The Utility Regulator – which covers electricity, gas and water industries.
In the first case, according to media reports (there are no formal court reports as this was only a county court decision) a business was awarded £14,000 from the French energy company Engie. The judge in this case decided that the energy broker had hidden additional fees in the business’s bills, and felt that this was “deliberate concealment” . He also felt that “it was Engie’s policy to not reveal the size or nature of this commission”. Whilst this case is interesting and informative, it’s important to note that decisions at this level of court do not create legally binding “precedent” which other courts must follow.
Another recent case, at a higher level of court, had a very different outcome. Here the court judge dismissed a similar claim against Drax Energy Solutions Limited in which the claimant was similarly aggrieved about undisclosed commissions.
Here the claimant was a business operating as a bowls club in Leicester. They argued that commission had been paid secretly, to a broker, without the club’s informed consent making Drax liable to pay them back the commissions of approximately £18,400. Technically they argued that the broker had what’s called a “fiduciary” duty to act in their best interests, and that Drax had induced or encouraged them to breach that duty.
Ultimately in this case the court felt that it was not necessary for the broker to disclose the amount of commission which was to be paid to them by the energy company, and that the broker had not failed to obtain informed consent and therefor had not breached its duty. Whilst the court did agree that the broker owed the club a fiduciary duty, it felt this did not include a duty to inform the club of the commission. In fact the Judge felt that the club could have been expected to ask questions about commission and that, ‘Those who run Clubs and small businesses have to be on their guard and should be alive to the possibility if a conflict of interest in these circumstances.’.
In addition, it is reported that a London law firm has sent a letter before action to British Gas, E.ON, SSE and others on behalf of “several hundred” clients in the first step in group litigation to reclaim undisclosed commissions which were allegedly paid by suppliers to brokers without customers’ knowledge.
The Judge’s decision seems surprising given his findings on the facts. It remains to be seen how the courts will resolve issues in future cases. What is clear from this decision is that brokers operating a similar business model are likely to be found to owe businesses a duty to act in their best interests. Questions of client sophistication and informed consent will no doubt continue to be fought out before the courts in individual cases particularly until there is some guidance from the higher courts.
There certainly seems to be an increase in these types of cases, and a feeling that there are potential grounds for claims by businesses against the energy companies for charging certain commissions without telling them that they had been added to their energy bills. Whilst the somewhat contradictory case law may, at this stage, seem somewhat confusing and unhelpful, they do seem to suggest that certain duties do exist and can potentially be breached in these types of scenario. As ever, each case will depend on its own particular facts, but it seems we can potentially expect many more of these cases.
Ensuring Transparency with Energy Brokers
FSB has been working closely with Ofgem on increasing the transparency of small businesses’ energy bills. By doing so, FSB has called on Ofgem and suppliers to include a breakdown of non-commodity costs, including how much of your energy bill goes towards energy broker services.
Small Businesses to get support through the Energy Ombudsman expansion
FSB has long called for greater protections for SMEs in the energy market and recently the Government announced that it would expand the remit of the energy ombudsman to include small businesses with up to 50 employees. The expansion will allow small businesses to access free redress for disputes with energy brokers and suppliers, offering a greater customer service experience and support for small businesses. For further information, see: https://www.gov.uk/government/news/british-businesses-supported-to-settle-energy-disputes.
FSB Northern Ireland
FSB NI continues to lobby for increased protections in the NI energy market for Small Businesses. In 2023, this resulted in the establishment of a new ‘Non-Domestic Energy Group’ within UREGNI. This was followed by a first stage review of the Non-Domestic Energy Retail Market in NI, in which FSB gave evidence and made recommendations. We foresee this resulting in improvements on the existing regulatory framework to ensure fair engagement, transparency and outcomes in the retail energy market for business consumers.