Court of Appeal sheds light on the agent's commissions and informed consent

Court of Appeal sheds light on the agent’s commissions and informed consent 

The recent Court of Appeal decision in Expert Tooling and Automation Limited -v- Engie Power Limited [2025] EWCA Civ 292, sheds some useful light on the courts’ approach to “half-secret” commissions in the energy sector. 

What was the case about?

The case concerned the liability of a party who pays commission to the agent of a third party principal, where the circumstances of the commission are only partially disclosed to the principal (known as “half-secret commission”).

Background

The claimant, Expert Tooling, manufactures tools, equipment and machinery.  Its business consumes substantial amounts of energy.  It used a third party broker, Utilitywise plc (“Utilitywise”), to negotiate its electricity supply contracts with energy supplier Engie. 

Utilitywise was not paid anything by the claimant but received a commission from Engie, the amount of which was added to the price the claimant paid for electricity under its contracts with Engie.  The claimant was aware that UW would be paid commission by Engie, but did not know the terms including how much.

Utilitywise went into administration in 2019 and was never sued.

The claimant brought proceedings against Engie in the High Court on the basis that:

• Utilitywise owed the claimant contractual and fiduciary duties, in particular a duty not to allow its interests to conflict with those of the claimant;

• The receipt of commission from Engie without having obtained the claimant’s informed consent constituted a breach of those duties;

• The claimant was entitled to recover the amount of the commissions paid by Engie as money had and received or equitable compensation for inducing Utilitywise to breach its duties.

Commission: how did it work and what was the claimant told?

Engie had agreed with Utilitywise that it would pay Utilitywise a commission in respect of each supply contract Engie entered into with a potential customer where requested by Utilitywise.  The commission to be paid would be based on the potential customer’s estimated energy consumption, subject to a reconciliation process at the end of each supply contract.  On entering into each contract, Utilitywise was immediately paid 80% of the commission it would ultimately be entitled to based on the customer’s expected consumption over the life of the contract, up front.

Utilitywise disclosed to the claimant the fact that it would be paid commission by Engie.  Engie disclosed to the claimant that the prices quoted by it may include commission due to any third party broker it used to negotiate its contract with Engie.  Importantly, the claimant was not made aware that the commission was in fact added to the price of the relevant contracts.  Nor was it given any further details by either Utilitywise or Engie about the level of commission payable to Utilitywise.

The Decision at First Instance

At first instance, the High Court, dismissing the claim, had held that:

• Utilitywise acted as agent for the claimant and owed it fiduciary duties including the duty not to allow its interests to conflict with those of the claimant;

• the “scope” of the duty did not include a duty to inform the claimant either of the amount of the commission to which Utilitywise was entitled or the fact that it was added to the price charged by Engie to the claimant;

• the claimant in any event gave its informed consent to the commission paid to Utilitywise;

• Utilitywise did not commit a breach of fiduciary duty;

• In relation to commission paid pursuant to the first contract (entered more than six years before the commencement of the action), the claim was time barred and there had been no deliberate concealment by Engie of any fact relevant to the claimant’s right of action.

The claimant appealed to the Court of Appeal on 8 grounds.

Grounds of Appeal

The claimant maintained that the Judge erred in law in his analysis of:

• the “scope” of the duties of the fiduciary agent;

• the requirements for the principal to give “informed” consent;

• the sophistication and vulnerability of the claimant

• trade, custom or usage (as part of his analysis of the duties or giving of informed consent);

• the requirement of dishonesty for Engie to be liable ;

• the date of formation of the contract induced by the expectation of an illicit commission as the date of accrual of the cause of action;

It was also argued that he failed to take account of material facts when analysing whether Engie had deliberately concealed material facts and whether the claimant could, with reasonable diligence, have discovered those facts; and that he erred in finding there was no dishonesty by Engie.

The Court of Appeal’s findings

The Court of Appeal  allowed the appeal on four grounds.  Key findings are discussed below:

Informed Consent

The distinguishing obligation of a fiduciary is loyalty, which includes the duty not to place oneself in a position where duty and interest conflict.

A key battleground on appeal was whether the extent of disclosure of the commission was sufficient to obtain the claimant’s informed consent to what would otherwise have been a breach of fiduciary duty.

Agents may not enter transactions in which their personal interest may conflict with that of their principal “unless the principal, with full knowledge of all the material circumstances and of the nature and extent of the agent’s interest, consents”.

The claimant was not told:

• the amount of the commission;

• that it was added to the unit price for electricity purchased by it from Engie;

• that the amount of the commission to which Utilitywise would be entitled depended on the length of the contract the claimant entered into with Engie;

• that Utilitywise was free to indicate what commission it wished to add to the unit price, subject to Engie’s confirmation, in circumstances where Engie had little incentive to dispute the amount as it would be passed through to the customer; or

• that a substantial up-front payment of anticipated commission was payable to Utilitywise on commencement of each contract.

The Court of Appeal concluded that these factors might have affected the claimant’s decision to enter into the contracts with Engie on the terms it did.  They created significant incentives for Utilitywise to cause the claimant to contract with Engie, whether or not that was in the claimant’s best interests.    For example, the up-front payment of 80% of estimated commission provided an incentive to procure that the claimant entered into a long term contract or forward contracts long before the period of supply commenced, irrespective of whether that was in its best interests.

The appeal court found that the first instance Judge had been influenced in deciding that informed consent was given by his conclusion that the claimant could have asked and, had it done so, it would have been informed of those details.   The Court of Appeal held this approach to have been an error of law as regards half-secret commissions.  

It further concluded that where the principal was not told of a number of material matters, this could not be overcome by relying on the fact that the principal was not particularly vulnerable or unsophisticated:

“It is insufficient for a fiduciary to comply with the requirement to obtain fully informed consent by putting the principal on enquiry, irrespective of how vulnerable, unsophisticated or otherwise the principal happens to be”. 

The Court of Appeal also remarked that the Judge had been wrong to characterise the fact that commission was being added to the unit cost as a “known industry practice” and take account of that as a factor in his decision because there was no evidence that the claimant was aware of that practice.

On these bases, the appeal court allowed the appeal, finding that the trial Judge had been wrong to conclude that the claimant’s informed consent had been obtained to the commissions paid to Utilitywise.

Dishonesty

The Court of Appeal concluded the trial Judge had been correct to find that dishonesty was a necessary ingredient in the claim against Engie.  The legal analysis was framed in summary as:

“The liability of a payer of a partially disclosed commission is an accessory liability for assistance in the breaches of fiduciary duty of the agent, in which dishonesty is an essential element”.

This ground of appeal therefore failed.

Limitation

The applicable limitation period was six years from the date on which the cause of action accrued.  A cause of action accrues when all the facts necessary to establish that cause of action are capable of being pleaded.   The trial Judge held that the claim under the first contract here was time barred because it was commenced more than six years from the date on which that contract was entered into.

The Court of Appeal held that the claim against Engie was as an accessory to Utilitywise’s breach of duty (and not one for money had and received).  Lord Justice Zacaroli giving the lead judgment concluded that:

“The pleaded cause of action for equitable compensation is for payment of an amount equal to the commissions paid by Engie to Utilitywise because “by paying the commissions”, Engie wrongfully induced Utilitywise’s breach of duties owed to Tooling.  In my judgment, the facts necessary to establish that cause of action were not completed until Engie paid commission to Utilitywise. Accordingly, I conclude that the claim against Engie in respect of the first contract was not statute-barred”.

On that basis this ground of appeal was dismissed.

Summary of the Court of Appeal’s findings

The Court of Appeal held, in summary, that:

• the Judge was wrong to conclude that there was no breach of fiduciary duty by Utilitywise;

• he was right to conclude that there was no basis for a claim against Engie for money had a received, and that a necessary ingredient in the claim against Engie for procuring or assisting in Utilitywise’s breach of fiduciary duty is dishonesty;

• given that no allegation of dishonesty was made against Engie, the Judge was right to dismiss the claim.

Conclusions

So, although the appeal succeeded in part, the claim was still dismissed as dishonesty on the part of Engie was not established and this was a necessary ingredient to establish the claim. 

This case emphasises some important principles concerning agents and commission, whether your business acts as principal, broker or supplier. 

It is crucial to keep in mind the fact that agents should avoid situations where their personal interest may conflict their principal’s interests.  Informed consent may get around this issue, but this requires full knowledge of all the material circumstances and the nature and extent of the agent’s interest. 

Agents and suppliers should consider very carefully what information to disclose as regards commission, and likewise businesses considering engaging a broker for energy or other supplies should think carefully before entering into such arrangements. 

The case also suggests a high bar may stand in the way of successful claims against suppliers in half-secret commission scenarios, where evidence of dishonesty is likely to be an essential ingredient.