Thursday, 3 April 2014

Financing through pyramids - CJEU judgment in 4finance (C-515/12)

3 Apil 2014: CJEU judgment in 4finance (C-515/12)

This case as we described earlier (Pyramid schemes...) concerned conditions that needed to be fulfilled in order to recognize a commercial practice as a pyramid scheme, which would then be blacklisted as an unfair commercial practice under Annex 1, point 14, Directive 2005/29/EC. The Court is in agreement with the AG Sharpston that it does not matter what is the amount of the consideration that consumers give for participating in a pyramid promotional scheme (how insubstantial it is). What is decisive is whether consumers need to give financial consideration for "the opportunity to receive compensation that is derived primarily from the introduction of other consumers into the scheme rather than from the sale or consumption of products". (Par. 34) In the given case, the CJEU has doubts whether the condition of consumers' compensation coming 'primarily' from the introduction of new members to the scheme was met since the bonuses paid to existing members were funded only to a very small extent by the financial consideration required from new members. If the national court determines that this condition was not met, then the company would not be seen as having conducted an unfair commercial practice. (Par. 33)

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