Court of Appeal finds that dishonesty is a requirement for accessory liability in secret commission claims

In this article we discuss how both the Court of Appeal and Supreme Court have recently heard successive appeals in secret commission claims.

While the Court of Appeal has clarified a number of the required elements of these claims, those decisions have been appealed and the final decisions will come from the Supreme Court in the coming months.

The Court of Appeal recently dismissed the Claimant’s appeal in Expert Tooling and Automation Limited v Engie Power Limited ^[1]. In doing so, however, it overturned several of the first instance judge’s findings. Ultimately the Claimant’s claim still failed, but it has received permission to appeal onward to the Supreme Court.

This note briefly explores the implications and the significant decisions still to be made by the Supreme Court. It is the latest in a series of articles on the subject of the Court of Appeal decision in Johnson v FirstRand Bank Limited (London Branch) t/a MotoNovo Finance and more generally on secret commission claims.

Background

Expert Tooling brought a claim against Engie Power against the background that Utilitywise, an energy broker, had brokered energy contracts for Expert Tooling with Engie Power. Utilitywise had received commission from Engie Power for doing so and Expert Tooling alleged that Utilitywise was its agent and that this constituted a breach of fiduciary duty, for which Engie Power was liable as an accessory. Utiltywise was insolvent and not a party to the claim.

In the case, the existence of the fiduciary relationship was conceded but remains a fact-specific assessment generally. In issue were the scope of the duties owed as a result of the fiduciary relationship and whether they were discharged.

The Decision

The core of the first instance judge’s decision in dismissing the claim rested on the grounds that ⁽¹⁾ the broker’s fiduciary duty did not extend to disclosing the amount of commission ⁽²⁾ but if it did then it had discharged its duty to obtain the Claimant’s informed consent to it. This turned on an analysis relying on the claimant’s knowledge of the fact that the broker was receiving commission and the claimant’s relative sophistication: knowing what it did, it could have asked about the amount of commission that the broker was receiving.

The Court of Appeal overturned the first instance judge’s decision on both points. This is also a departure from similar findings that had been made in County Court decisions at first instance.

The Court of Appeal’s decision was that the broker’s fiduciary duty was not limited by the claimant’s sophistication or its ability to ask questions. The broker had an absolute duty not to place itself in conflict with the claimant and this duty could only be limited by the contract between the broker and claimant.

The Court of Appeal then went on to find that in order to obtain the claimant’s informed consent the broker would have had to disclose everything the “might (not would) have affected” the claimant’s decision. On the facts this included ⁽¹⁾ the amount of commission ⁽²⁾ that it was added to the unit price of energy ⁽³⁾ commission depended on the length of contract ⁽⁴⁾ the broker was free to indicate the amount of commission it wished to earn subject to Engie’s confirmation ⁽⁵⁾ there was a substantial payment of up-front commission. The claimant’s sophistication remains in issue as to whether it understood the conflict from the disclosed facts.

In dismissing the appeal, the Court of Appeal affirmed the first instance judge’s decision that dishonesty was a required element to make Engie liable as an accessory to the broker’s fiduciary duty. This may prove to be a difficult hurdle to clear for many claimants going forward. This is so because they must have a higher degree of evidence of dishonesty to even bring the claim than for claims not based on dishonesty.

In reality, the payment of commission was to all appearances a commercially accepted practice. While the evidence of this practice disclosed by Ofgem information leaflets or the apparent finding by the first instance judge that this was an industry custom and practice were not held to have any impact on the claim by the Court of Appeal, it does suggest that energy suppliers were not dishonest in concealing the practice.

Finally, on limitation the Court of Appeal held that this ran from the date that all required elements of the cause of action had arisen. As the cause of action arose out of the payment of commission, the 6-year limitation period only began running from payment of that commission.

The Supreme Court

The Supreme Court has just finished hearing a joint appeal in Johnson v FirstRand Bank Limited (London Branch) t/a MotoNovo Finance ^[2] dealing with motor finance commission. It will now have the opportunity in that case to make a finding, among other things, on the level of disclosure required for the broker to have obtained a principal’s informed consent. To that extent, the Court of Appeal’s decision is not the final decision on that question.

At the same time, Expert Tooling has been given permission to appeal the Court of Appeal’s decision to the Supreme Court on the grounds that (i) both half secret and fully secret commissions should be treated as bribes and that the payer of a bribe incurs a restitutionary liability for money had and received in the amount of the bribe and (ii) that the Court of Appeal erred in applying a test of dishonesty at all to half secret commission claims.  This is not surprising as Lady Justice Asplin welcomed this further clarification from the Supreme Court in her judgment.