The role of agents and the law pertaining to them is ancient, dating back (at least) to the Roman period. In England and Wales, the common law and statutory position is just as comprehensive. Despite this, disputes between agents and their principals continue to reach the courts with surprising frequency.
A particularly litigated area in recent months pertains to the payment of so-called “secret commissions” – commissions paid by a connected third party to an agent for the agent’s activities in arranging a transaction between the third party and the agent’s principal, without the principal’s knowledge. The Supreme Court is scheduled to hear a significant case this month in the context of motor finance commissions, where dealers arrange such finance on behalf of consumers purchasing vehicles.
In a business-to-business context, the Court of Appeal in Expert Tooling and Automated Limited v Engie Power Limited [2025] EWCA Civ 292 has brought welcome clarity to the law around secret commissions, particularly “half-secret” commissions. The case also serves as an important reminder about contractual notices and the risks agents face if they fail to fully disclose their renumeration to their principals – even when they think they might have done so.
Any individual or company may give a third party the right to act on their behalf in some capacity.
This individual or company is the principal.
The third party is the principal’s agent.
Fiduciary relationship between agent and principal
An agent owes what is called “fiduciary duties” to its principal. This means that the agent’s responsibility is to act in the best interest of the principal. A fiduciary duty exists between two parties where the circumstances call for a “relationship of trust and confidence.”
In simpler terms, if a principal authorises an agent to act on their behalf, the agent is generally required to act in the best interests of the principal that granted them that authority. Otherwise, the relationship would be pointless.
In England, the law steps in to ensure that a principal has rights that can be enforced against the agent if the agent fails to act in their best interests.
The specific fiduciary duties owed by an agent depend on the circumstances of each case. However, at a fundamental level, an agent has a duty not to allow their own interests to conflict with those of their principal, unless the principal gives informed consent. In certain circumstances, that means that an agent is not allowed to receive unauthorised profits from their activities, as doing so would amount to acting in their own interest without the principal’s consent.
This fundamental duty – and the collection of unauthorised profits – was the one most in issue in Expert Tooling Case.
Background
The claimant, Expert Tooling and Automation Limited (Tooling) is a tool equipment manufacturer – an energy-intensive activity.
Tooling engaged Utilitywise plc (UW), an energy broker, to procure for Tooling energy supply contracts at preferential rates.
The relevant energy supplier was Engie Power Limited (Engie), the defendant.
UW arranged five energy supply contracts between Tooling and Engie, charged at a specific unit price.
Sometime after the contracts were formed, Tooling realised that it was paying an additional amount on top of its unit price to enable Engie to pay UW a commission. Over the five contracts, this amounted to £130,449.70 in additional energy payments that Tooling otherwise wouldn’t have made or authorised had it known these payments were commission fees.
UW went into administration in 2019 and was dissolved in 2022. In simple terms, Tooling was stuck having to sue Engie on the basis that Engie was responsible for causing UW’s breach of its fiduciary duties, as Engie was the one paying out UW’s commission (at no loss to Engie).
High Court decision
In Expert Tooling and Automation Ltd v Engie Power Ltd [2024] EWHC 374 (Ch), Saffman J, at first instance, accepted that a fiduciary duty existed between Tooling and UW. That duty included an obligation not to allow UW’s interests to conflict with the Tooling’s interests (without Tooling’s informed consent).
However, Saffman J determined that the scope of this fiduciary duty did not extend to an obligation to inform Tooling of how much commission UW would receive or the fact that this commission would be added to the unit price set by Engie (and consequently paid by Tooling). Therefore, Tooling did give its informed consent to UW’s collection of commission – and for UW’s purposes that is all that was required.
Saffman J went on to analyse the issue in the event he was wrong, and therefore whether Tooling gave its informed consent to Engie’s payment of commission to UW in the particular circumstances. Tooling acknowledged that it was aware that UW would receive some form of commission from Engie. This is why, in this case, the commission was considered “half-secret”. However, Tooling argued that it didn’t know the full extent of the commission and, therefore, couldn’t give its informed consent.
He held that Tooling did give its informed consent in this respect. The relevant legal test for informed consent is consent “with the full knowledge of all the material circumstances and of the nature and extent of the [agent’s] interest.”
The following factors were relevant to this finding:
- The limitation of liability clause: The agreement between Tooling and UW limited UW’s liability to an amount capped at ‘the aggregate commissions received by [UW] from a utility provider in connection with the Services provided to [Tooling]’. Various documents shared between Tooling and UW referred to this agreement, which itself included the limitation of liability clause.
- Engie’s quotes: Engie’s quotes to Tooling explicitly stated that ‘contract prices quoted may include commission’.
- Telephone conversations: In telephone conversation between UW and Tooling employees, the following statements were made:
‘we [UW] do get paid a commission from the supplier and as part of your energy package, the price you have accepted inclusive [of]… your utility management plan consisting of the following, that is your dedicated account manager
‘as I’m sure you are aware as a consultancy we [UW] do get paid a commission from the supplier as well. Is that okay?’
- A 2015 Ofgem leaflet: A 2015 Ofgem leaflet, which was publicly available (but not directly provided or made aware to Tooling by UW, nor available on UW’s website), stated:
‘[a third party intermediary] will charge for the services it provides you. This could be a direct charge paid by you to them (e.g. a flat fee, a charge per trade made on your behalf) or indirectly. For indirect payments, the [third party intermediary] receives a payment from the supplier, which is added to your bill.’
Given the finding of informed consent, Engie could not be held liable as no breach occurred. Saffman J analysed whether Engie could be held liable for its involvement in UW’s hypothetical breach.
In doing so, Saffman J pointed to the restatement of the law in Fiona Trust & Holding Corporation v Privalov [2010] EWHC 3199 (Comm), which states that a ‘defendant will be liable for procuring or assisting in a breach of trust or fiduciary duty if a person acted in breach of a fiduciary duty owed to the claimant and the defendant dishonestly persuaded that person to do so, or assisted him to do so.’
In simple terms, Engie would only be liable if it was dishonest – that is, if it had actual knowledge and awareness that its actions were dishonest.
Dishonesty wasn’t fully argued by Tooling at the trial. Consequently, Saffman J had no other option but to dismiss the claim. However, he found that based on the evidence in front of him, there was no indication of dishonesty. Engie had referred to the possibility of commission, and in its agreement with UW, Engie required UW not to act in breach of a fiduciary duty.
Court of Appeal decision
Tooling obtained permission to appeal.
Its primary ground of appeal was that while Saffman J correctly identified the test for informed consent (i.e. consent “with the full knowledge of all the material circumstances and of the nature and extent of the [agent’s] interest”), the test was not applied correctly. Tooling argued that the factual matters cited by Saffman J did not constitute “full knowledge” of “all the material circumstances”.
In its decision, with Zacaroli LJ giving the leading judgment, the Court of Appeal agreed and upheld the appeal.
The Court found that, although Tooling was aware of the “half-secret” commission (as demonstrated in the High Court proceedings), it did not know the following:
- The amount of the commission.
- That the commission was added to the unit price charged by Engie.
- That UW’s commission increased the longer the contract between Tooling and Engie was.
- That UW could specify its own commission, which Engie would add on without issue, as Engie was not paying the commission.
- That UW was paid part of the commission up front.
The vague references to the possibility of commission payments were not sufficient to establish that Tooling had knowledge of the commission structure. There was no evidence that Tooling was aware of the Ofgem leaflet, and no further evidence that the precise mechanics of commission payment for energy brokers were public knowledge.
Additionally, the Court of Appeal addressed the argument that Tooling could have asked UW for details if it wanted to, but it did not. The Court held that this is not a valid defence. The obligation to obtain informed consent rests with the agent. The agent must make the necessary disclosure(s) to ensure the principal has the “full knowledge” of all material circumstances.
Accordingly, Tooling did not give its informed consent to Engie’s commission payments to UW. Therefore, UW acted in breach of its fiduciary duty to Tooling.
On the issue of dishonesty, Tooling sought to argue in the appeal that an earlier Court of Appeal decision in Wilson & Anor v Hurstanger [2007] EWCA Civ 299, had created a new form of liability for third parties that “procure” (i.e. are involved in) the breach of fiduciary duty without the need for dishonesty.
This ground of appeal was dismissed. The Court of Appeal clarified that liability would only attach to the third party if dishonesty could be demonstrated through evidence. Providing dishonesty requires information about the defendant’s state of mind, which is notoriously difficult to demonstrate.
Tooling also tried to bring in the more recent decision in Johnson v FirstRand Bank Ltd [2024] EWCA Civ 1282, which dealt with “secret” and “half-secret” commissions paid to car dealers by motor finance brokers. Tooling argued that dishonesty could be found in a third party merely by virtue of the fact that third party knew the agent owed a fiduciary duty to a principal and paid commission.
The Court of Appeal held that FirstRand didn’t support this argument, as the Court in FirstRand had clearly identified that FirstRand actively tried to prevent the agent from disclosing the commission. That conduct was sufficient to establish dishonesty.
However, fully secret commission payers may well find themselves in a different category because if the commission payment is fully secret (and the third party knows about it), liability may more readily attach to the third party. It is hard to maintain honesty if the third party knows the principal has no idea that a separate commission is being paid to its agent by that third party).
Case comment
The Court of Appeal’s decision in Tooling will have knock-on effects as to how brokers interact how their principals. The dual commission structure is relatively common across a variety of sectors.
Sticking references to potential commission in lengthy contracts and toeing an opaque line of transparency isn’t enough. Agents should review how they are doing business and what they think their principal customers know about third party commissions to avoid having to hand such commissions over.
As to commission payer liability, whilst Tooling will bring some comfort, the Court of Appeal in FirstRand did keep the door open to liability where the third party “has not satisfied itself that the borrower [principal] has given their fully informed consent to the payment [by the third party to the agent]” – this issue, among others, will be considered by the Supreme Court in April.
At EM Law, we are experts in agency law and dispute resolution. If you have any questions about this case or agency law more generally, please do not hesitate to get in touch with Colin Lambertus or Sasha Bark-Jones directly. You can also reach out to the firm using the contact us page here.
