Friday, 23 December 2016

Lucky4All pyramid scheme in lotteries - CJEU in Nationale Loterij (C-667/15)

Last week, on December 15th, the CJEU also gave its judgment in a Belgian case Nationale Loterij (C-667/15) that concerned pyramid promotional schemes as unfair commercial practices. The black list in Annex I to the Unfair Commercial Practices Directive 2005/29/EC clearly marks in its point 14 as an unfair commercial practice, under any circumstances, 'establishing, operating or promoting a pyramid promotional scheme where a consumer gives 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'.

Nationale Loterij organises public lotteries in Belgium and it filed a complaint against Lucky4All scheme as a prohibited pyramid promotional scheme. Lucky4All allowed lottery players of Nationale Loterij to form groups and play together, thus increasing their winning chances. Ultimately, through eight pyramid levels, 9841 combinations could be played at the same time. Existing members pay an initial contribution of 10 euro and a monthly contribution of 43 euro, allowing to purchase 10 lottery combinations a week. The purchase would be conducted by a representative of the scheme and he would also share the winnings, if any. 50% of the winnings would go to the member who came up with the winning combination, 40% would go to members in higher levels of the scheme (incl. Lucky4All scheme itself) and 10% would be reinvested. The winnings would be capped at 1 million euros. Belgian courts were not sure whether the last condition of the Annex I (also reiterated in previous 4finance judgment of CJEU, C-515/12) was met in this case, namely, whether compensation paid out to existing members of the Lucky4All scheme was primarily or mostly based on financial contributions of new members. This would depend on whether the link between contributions of new members and payment to existing members needed to be direct.

The CJEU is clear that also an indirect link suffices to recognise a pyramid promotional scheme. What is required is that members pay a financial contribution (para 27) and a link between contributions paid by new members and compensation of existing members (para 28). This link, however, does not need to be direct, as the UCPD does not specify such a condition (para 30) and introducing it would lead to easy evasion of this prohibition (para 31). While the assessment of the facts of this case is left to the national court, in para 32 the CJEU suggests that a financial link in this case appears to be 'indirect but certain', as the chances of winning are linked to the introduction of new players to Lucky4All scheme, and when chances of winning increase with the increase of number of players, the scheme introduces a capping of winnings.

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