On 5 March 2024, Recorder Geoffrey Pritchard sitting in the Leeds County Court upheld a claim against Engie Power Limited (‘Engie’) in a case relating to undisclosed commissions paid to energy brokers.
The decision in Weardale Entertainments Limited & another v Engie Power Limited [2024] appears to conflict with earlier County Court judgements in Dark Blue Pig v Engie and Leicester Bowls v Drax which were cases involving extremely similar facts.
Weardale operates an amusement arcade known as “Queenie’s Casino Slots” in Crook, Bishop Auckland. The company had been cold called by brokers offering to obtain the best deal they could and had subsequently entered five supply contracts with Engie between 2015 and 2020. Unbeknown to Weardale, Engie agreed to add an uplift to the contract energy prices per kWh to be paid as broker commission varying between 0.10p and 3p per kWh.
Weardale argued that it did not know the nature of the financial payments to its broker or the underlying conflict of interest that the arrangements might cause, and that it did not give its consent to those arrangements such that the brokers were acting in breach of fiduciary duty. Engie denied that the brokers had acted in breach of fiduciary duty but accepted that it was liable for the breaches if they were proved.
The dispute at trial therefore focused on whether the commission arrangements gave rise to a conflict of interest, whether the broker owed the claimant a fiduciary duty and if so whether that required the broker to disclose the nature of the commission arrangements to Weardale.
The court heard evidence from Mr Smith, who is the owner of Weardale, as to the facts giving rise to the claim including his knowledge of the commission arrangements. Sales Director, Paul O’Connor gave evidence for Engie having also appeared as a witness in the earlier Dark Blue Pig case referred to above. The Judge observed that Mr O’Connor’s evidence was ‘..less that entirely satisfactory.’ and that in his view Mr O’Connor was extremely reluctant to give answers to certain questions that presented a choice of straightforward answers because he feared his answer might damage Engie’s position or undermine his previous evidence.
The Judge decided that the broker did act as Weardale’s agent on the facts, that they owed Weardale a fiduciary duty and that there was no doubt that the manner in which the broker’s commissions were determined gave rise to a conflict of interest between the broker and Weardale.
The finding that a conflict existed was based two material factors. Firstly, the size of commission was decided by the broker alone without any reference Weardale’s interests, this required that the broker chose to ask for the lowest commission possible. The broker’s interests required the opposite.
Secondly, the broker had the authority to determine the length of contract to which Weardale would be bound. It was potentially in the broker’s interests to seek to bind Weardale to a long-term contract as this would guarantee a given commission rate. On the other hand, depending on market conditions, it might or might not be in the interest of Weardale to enter a long-term contract.
Engie tried to establish that Weardale should have been aware of the practices of broker commission arrangements as well-known and customary in the trade by relying upon the evidence of Mr O’Connor, publications by OFGEM, the content of one of the broker’s public accounts and publications by the Citizens Advice Bureau. This was roundly rejected, with the Judge commenting that, ’it would … have been fanciful to suggest that a businessman in Mr Smith’s position would have gone out and looked for such information prior to entering a contract with the brokers. ‘. The Judge commented that this would be far above the level of financial sophistication and interest of Mr Smith or ‘likely to be exhibited by the ordinary businessman in his position.’
On the question of breach of fiduciary duty, the Judge rejected the notion that Weardale should have been aware of the way commission was paid as a matter of trade usage and custom. It was not sufficient, the Judge concluded, that Weardale were aware that there was some kind of commission arrangement between Engie and the broker.
The heart of the conflict of interest in this case is not the payment of a commission per se, it is that the broker could choose, without reference to Weardale, the commission rate they were to be paid per kWh. The failure to disclose this was such that there was a failure to provide sufficient information to provide full knowledge of all the material circumstances and of the nature and the extent of the broker’s interest.
The Judge referred to the earlier decisions in both the Dark Blue Pig and Leicester Indoor Bowls cases observing that he had reached a different conclusion on similar facts. In those cases, the Judges thought the claimants should have been on guard as to the existence of some kind of commission. However, the Judge in this case did not believe that the information available to Weardale was sufficient to put it on its guard against a conflict of interest caused by a commission arrangement based on the broker setting its own commission rates on a per kWh basis.
In essence the Judge was satisfied that despite being a businessman Mr Smith /Weardale was not sophisticated in a way which would put him on guard as to of the type of conflict of interest that existed. He rejected the suggestion that Mr Smith would have or should have enquired as to what services were being provided and how much they were going to cost. It was accepted that whilst Weardale/Mr Smith were not unsophisticated or vulnerable, they were not of a level of sophistication that would have, given the information available, put them on their guard as to the commission arrangements and hence the potential conflict.
In addition to his findings on the main issues, the Judge found that Engie had deliberately concealed the commission. It was clear, he said, from the confidentiality provisions in the overarching brokerage agreements between Engie and its brokers and from Mr O’Connor’s evidence, that it was Engie’s deliberate policy not to disclose to Weardale (or any other consumer in its position) the commissions and the model adopted by Engie. Further, he accepted the argument that Weardale could not have discovered either the commission amounts or the model under which they were paid on the basis that even had they asked about the same, neither the broker nor Engie would have revealed the information.
The Judge awarded Weardale compensation to reflect the cost the commission uplift and set out his views as to how to address commissions payments in relation the ongoing contracts.
This is another interesting case in the business energy claims saga. It appears completely at odds with the earlier decisions in Dark Blue Pig and Leicester Bowls. The decision will no doubt cause energy suppliers operating similar commission models great concern given the significant number of potential claims.
