At VWM Capital, we offer investment opportunities in UK litigation claims that are uncorrelated to traditional capital markets and, therefore, relatively insulated from market volatility. Among the litigation claims we fund are business energy undisclosed commission (PCP UDC) claims. Below you can find out more about these cases.
In the UK, there has been an explosion in business energy claims in recent years, following a 2020 investigation and damning report by the industry regulator, the Office of Gas and Electricity Markets (Ofgem).
Ofgem found evidence of widespread mis-selling and undisclosed commissions between brokers and energy suppliers. Rather than secure energy contracts offering the best possible value for businesses, unscrupulous brokers favoured suppliers offering higher commission fees, often hidden, and tied their clients into long-term contracts for their own benefit.
Find out everything you need to know in our guide.
What are business energy undisclosed commission (BE UDC) claims?
Many UK businesses use brokers to secure their energy needs. These brokers are required to act as neutral middlemen between businesses and energy suppliers. However, evidence uncovered by Ofgem has revealed that many brokers have been including hidden commissions in contracts without fully disclosing them to the client.
Commissions like these can result in unnecessary and unfair expenses for businesses. The brokers tend to hide charges within the unit price, or they may otherwise mislead businesses by claiming that their services are free, or that their commission is simply an ‘introducer’s fee’.
This lack of transparency is concerning for a number of reasons, but most importantly, it represents a breach of legal obligations. Such as:
- Ofgem Standards and Regulations: Ofgem is responsible for implementing regulations to protect businesses from unfair practices in the energy sector. One of these regulations requires energy brokers to disclose all commissions and fees to their clients.
- Consumer Protection from Unfair Trading Regulations: Established by the UK government, this set of regulations prohibits unfair practices such as lack of transparency, misleading omissions, or aggressive practices. Hidden commissions are arguably an example of misleading omissions, which would constitute a violation of regulations.
If these violations can be proved in a court of law, those affected will most likely be eligible for compensation.
Examples of business energy undisclosed commission (BE UDC) claims case law
At VWM Capital, when we fund litigation claims, we look for established case law – where judgments in past cases have been made in favour of claimants, therefore setting a precedent for future rulings.
Relevant legislation and favourable judgments in UK business energy claims include:
Stranton Social Club v Utility Alliance [2020]
Quite recently, Business Energy Claims (BEC) helped a golf club to recover £24,000 in hidden charges from their energy broker, Utility Alliance. Callum Thompson, BEC director, stated that “41% of the club’s energy bills took the form of commissions, which were not disclosed at the point of sale, nor disclosed or documented on bills or on the contract.” A hearing at Newcastle Upon Tyne County Court saw the judge rule in favour of Stranton Social Club on the basis that Utility Alliance had a duty to account to the customer in full for the commissions earned and included in their gas supply contract. The club received 100% of their claim, with standard costs awarded and interest payable.
Bribery Act 2010
The Bribery Act 2010 is another good point of reference when it comes to BE UDC claims. The act outlines offences related to bribery via six distinct cases. According to Case 4, bribery occurs when:
- A person (R) requests, agrees to receive or accepts a financial or other advantage, and
- the request, agreement or acceptance itself constitutes the improper performance by (R) of a relevant function or activity.
When a business engages with a broker, it is the responsibility of that broker to remain impartial and to work in the best interests of the client. Accepting a commission may not be illegal in and of itself, but by agreeing to one and not disclosing this information, it is within reason to claim that the broker has accepted a financial advantage that could affect their judgment. In particular, because this was accepted without the client’s knowledge.
The act goes on to clarify that “it does not matter whether R knows or believes that the performance of the function or activity is improper.”
Why VWM Capital funds business energy undisclosed commission (BE UDC) cases
According to Ofgem, “there were over 5.6 million microbusinesses in the UK by 2019, accounting for 96% of all businesses, 33% of employment and 22% of turnover.” Of these 5.6 million microbusinesses, it’s estimated that two out of three use an energy broker, and an Ofgem review found that “microbusinesses are hampered by a lack of transparency when using brokerage services and end up being locked into poor value deals because they are not fully aware of what they are signing up to.”
Being ‘micro’, these businesses have a lower turnover and are much less likely to have the funds necessary to pursue legal action. By helping them with litigation funding, VWM Capital gives them access to justice that they wouldn’t have otherwise been able to seek.
The vast number of affected businesses has created a rich pool of these types of claims in UK courts, which allows us to fund a high volume of them and better spread investment risk. As an added benefit for investors, the vast majority of BE UDC cases are settled well before reaching court, meaning less time to wait for returns.
What puts VWM Capital ahead of other funds is our use of algorithm-based lawtech, which allows us to quickly assess a large number of cases and accurately preselect those with a high probability of success. Once a shortlist has been created, we then consult legal experts who review the cases to confirm they have merit. Our investment committee confirms final selections before accepting them into the portfolio.
An ESG investment opportunity enhanced by technology
Millions of business energy arrangements potentially involve undisclosed commissions, and a great many businesses will require litigation funding to be able to seek legal redress. For investors looking to gain exposure to an alternative asset class uncorrelated to the bond and equity markets, this is an exciting opportunity.
VWM Capital combines the power of technology with human legal expertise to enable fast-tracked funding for hundreds of lower-figure cases every week.
If you’d like to find out more about how it all works, our team is here to help. For all investment enquiries, please contact the team.