Energy giants could be forced to pay billions of pounds out to business customers after an Appeal Court decision “opened the floodgates” to claims on deals stretching back more than 20 years that may have been mis-sold.
Legal experts believe the ruling could be the beginning of a claims larger than those made following the Payment Protection Insurance (PPI), which saw more than £38bn paid out to customers mis-sold the product between 1990 to 2010.
However, there are also warnings that huge payouts to businesses could be recouped by energy giants hiking prices for business and domestic customers.
“The claims are in the billions. This ruling opens the flood gates to businesses who believe they have been mis-sold to,” Victoria Myers, director of specialist litigation firm Energy Solicitors, told The i Paper.
“The energy broker market is worth about £2bn a year, and when you consider this mis-selling stretches back more than two decades the amount of the claims could well add up to more than those during the PPI scandal.”
The broker fee claims could stretch back to 2000, when Ofgem deregulated the brokerage market.
Myers added: “With the unregulated energy broker market continuing to grow at pace, this ruling provides a vital safeguard for businesses seeking fair and honest energy deals.
“Running a business is hard enough and energy prices are already high, so the last thing businesses need is to pay hidden and undisclosed commission for their energy, increasing these already high costs.
“This ruling really paves the way for businesses who believe they have been mis-sold to, clarifying what can be a confusing market and making the process of recovering funds easier for businesses.”
A spokeswoman for the Utilities Intermediaries Association (UIA), which represents broker and other third party intermediaries (TPIs) working in the energy sector, said: “Anyone in business understands, or should understand, that services come at a cost.
“As long as all necessary information is provided to the customer, enabling them to ask the right questions, it is ultimately the responsibility of business customers to exercise due diligence. This is the commercial sector, not domestic retail.”
The UIA spokeswoman added that if energy suppliers had to lose billions following business claims, corporate and domestic customers would end up bearing the cost of the payouts.
“The one certainty in energy markets is that suppliers will pass any financial shortfalls onto all consumers, which will include domestic, prioritising shareholder interests above all else.”
Energy broker commission is added to business energy bills – often hidden in the customer’s tariff – and can account for up to 50 per cent of the total costs, according to research from industry regulator Ofgem.
It was not until October 2022 that Ofgem started to close this loophole, making it a requirement for brokers to declare their commissions to clients in micro-businesses.
However, industry chiefs believe businesses should have known that energy broker advice would have included a fee.
Last month, Court of Appeal judges heard a case between a company called Expert Tooling and Automation, and the energy business Engie Power, which has previously gone in Engie’s favour in the High Court last May.
The case centred on broking firm Utilitywise selling five contracts in 2016 and 2017, with start dates extending into summer 2022. Utilitywise fell into administration in 2019.
The court ruled that Expert Tooling and Automation had not provided “informed consent” for Utilitywise’s fees for agreeing the deal with Engie, but not that the energy company had acted dishonestly.
According to Energy Consultants Association (ECA), the ruling is “extremely specific to Utilitywise, Engie, and their sales practices from almost a decade ago”.
However, the case may yet go to the Supreme Court which is already to consider later this year the responsibility of energy giants in such deals.
A spokeswoman for Energy UK, which represents energy suppliers, said: “As the majority of non-domestic contracts are secured through brokers, the industry has long called for them to be regulated in the same way as the rest of the market.
“Ofgem having the legal powers to set out and enforce rules would increase regulatory oversight and establish higher standards for brokers so that business customers are properly protected.”
A spokesman for Bionic, one of the leading UK energy brokers, added: “Brokers play an invaluable role for Britain’s busy business owners, helping them compare providers, understand the available options, and complete the switch on their behalf.
“This essential service ultimately helps them save time, money and faff when switching business energy.
“While we cannot comment on the practice of other providers, Bionic has disclosed commission to our customers since 2016, some six years before it became a legal requirement.”
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