The emerging scandal of hidden commission in the business energy sector

A lawyer specialising in commercial litigation has issued a warning to businesses to look into their energy broker and any hidden commission they may be receiving in what he is calling an ‘emerging scandal’.

Alex Jakubowski, a Partner with national law firm Clarke Willmott LLP, says the lack of regulation in the business energy sector has allowed the rise of some very sharp practices in terms of service standards and charging and many energy brokers giving insufficient information to customers.

Businesses will be entitled to make a claim against energy brokers who have not been transparent about their commission, with Alex believing the problem is of ‘epidemic proportions’ in the UK.

He and colleagues at Clarke Willmott are now pursuing a substantial number of these claims, varying in size from a few thousand pounds to over a million.

“Any business using gas, electricity or both may instruct a broker to manage its energy procurement. Most will have received a cold call or email from a broker at some stage, and sometimes the timing is right,” said Alex.

“There are lots of these brokers out in the market and that in itself is not controversial, but most people don’t realise that brokers aren’t regulated by OFGEM. There is no set of rules by which they operate and they aren’t held to any set of standards.

“They do not explain how commission is calculated or inform customers that their unit charge will increase by the amount of the commission. Suppliers are adding commission to customers’ bills and they have no idea they are paying it.

“Some of the practices we have become aware of amount to nothing less than bribery and fraud.”

These brokers are known as TPIs by OFGEM, which stands for Third Party Introducers. Some of them have scaled up into very substantial operations, operating call centres often based in the North West or the North East of England.

While some brokers are up front about their charges and give customers the option to pay an up-front fee or a consumption-based commission, lawyers at Clarke Willmott say this is often not the case, with a lot of brokers not informing customers on the phone, in correspondence, in their terms, or even in the small print on their website.

Businesses are now being urged to look into their deals and think about whether they know how their broker gets paid. The law firm says millions of pounds in compensation could be due.

“Customers should ask themselves what they know about commission payments and whether they have given their informed consent, even those customers who have perhaps been told the service is free or that the supplier pays the commission.” said Alex.

“Your energy broker is your agent and owes you a duty of utmost good faith, which means avoiding any conflict of interest. However, where your broker is introducing you to a contract with a supplier who is going to pay a commission, that’s a clear conflict of interest.

“The broker must notify you of the payment and secure your consent. It’s not enough for them to mention in the small print that they may or even will receive a payment from the supplier. They have to give you the information that you need in order to give your informed consent and if they don’t that’s called a secret commission or half-secret commission, also known as a bribe.

“Where your agent has made an undisclosed profit, you are entitled to an account of that profit. In the case of a broker’s commission, you are entitled to claim the entire amount of that commission.

“And it’s not only the brokers who are to blame. Suppliers have fuelled these practices with up front commission payments and generally leave it to the brokers to explain their commission. However, that’s not good enough. The supplier has a responsibility to check that you have consented or pay the consequences.

“In the equation where the commission is a bribe, the supplier is the briber. So, if you didn’t consent to the commission your broker received, you will be entitled to claim it from your supplier as well as your broker.

“We believe that a vast amount of undisclosed commission has been paid and received at a cost to the customer. If you have used an energy broker you should double check how that broker has been paid and whether you gave your informed consent, if you didn’t then you may have a claim.”

Clarke Willmott has compiled a list of questions for businesses to consider when thinking about making a claim.

Do you know:

• the nature of the broker’s relationship with the supplier;
• the amount of the commission;
• how it is calculated;
• the commission rate;
• that the broker has an interest in you switching from your existing contract;
• that the broker has an interest you entering into a longer contract;
• that you may be able to achieve a better price directly or through another broker who might charge a lower commission;
• that the supplier adds the amount of the commission into your unit charge and charges it penny for penny straight back to you.

If you don’t know these things, then informed consent hasn’t been given and the commission amounts to a bribe.

Businesses that have any queries or would like to discuss a potential claim can contact Alex Jakubowski on 0345 209 1385 or at [email protected]

Clarke Willmott is a national law firm with offices in Birmingham, Bristol, Cardiff, London, Manchester, Southampton and Taunton.

For more information visit www.clarkewillmott.com