Energy companies in the class action spotlight

Just as energy companies are hitting the headlines with record profits, there may also be future storm clouds gathering for some energy companies through the UK courts' class action systems. Recent press reports suggest that some plaintiff law firms are already gathering groups of small businesses (SMEs) together in preparation for potential class actions against energy companies arising out of what is alleged to be "secret commissions" paid to brokers for introducing SME's to energy companies.

While Ofgem has energy brokers, for the most part an unregulated group, in their sights over taking undeclared commission, their practices have also drawn the attention of law firms who may end up raising class actions on behalf of SMEs footing an increased energy bill. We've written before about the basics of class actions, or group proceedings as they are known in Scotland. To understand the potential scale of the issues, it is thought that there are around 1600 brokers in the UK some of which may have employed tactics, including cold calling at the point SMEs are coming to the end of their energy deal, to persuade businesses to sign up to a particular tariff with an energy company. The problem is that it is alleged that some of the commission subsequently paid to certain brokers may not have been adequately brought to the attention of SMEs openly and in advance of decisions being taken on who they sign up with to supply their energy. The net result is that some SMEs may be paying more for their energy supply than they might have done if they had instead approached the energy company direct.

Of course, not all energy companies use brokers and it must be the case that some brokers declare their commission in advance. But it has been reported that one plaintiff law firm has already written to British Gas, and is also preparing to contact E.On, SSE and Opus, to say that if repayment of commission to their clients is not forthcoming then they may face a potential class action. At a time when it is well known that energy bills are soaring, the sums involved, if the class or group of SMEs grows substantially, could be significant. Brokers can generate a range of commission based on the kilowatt hour (kWh) so, potentially, an energy company could be faced with many claimants all brought under the banner of one court action.

Given the current energy climate, we can expect the spotlight to continue shining on this latest development in the press and, indeed, the class action landscape.