Loterie Nationale – Nationale Loterij NV van publiek recht v Paul Adriaensen and Others (C-667/15)

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Judgment of the Court (Sixth Chamber)15 December 2016^note(Reference for a preliminary ruling — Directive 2005/29/EC — Unfair business-to-consumer commercial practices — Misleading commercial practice — Pyramid promotional scheme — Contributions paid by new members and compensation received by existing members — Indirect financial link)In Case C‑667/15,REQUEST for a preliminary ruling under Article 267 TFEU from the Hof van beroep te Antwerpen (Court of Appeal, Antwerp, Belgium), made by decision of 3 December 2015, received at the Court on 14 December 2015, in the proceedingsLoterie Nationale — Nationale Loterij NV van publiek rechtvPaul Adriaensen,Werner De Kesel,The Right Frequency VZW,THE COURT (Sixth Chamber),composed of E. Regan, President of the Chamber, J.‑C. Bonichot (Rapporteur) and A. Arabadjiev, Judges,Advocate General: E. Sharpston,Registrar: A. Calot Escobar,having regard to the written procedure,after considering the observations submitted on behalf of:— Loterie Nationale — Nationale Loterij NV van publiek recht, by J. Muyldermans, P. Maeyaert and P. Vlaemminck, advocaten,— Mr Adriaensen, Mr De Kesel and The Right Frequency VZW, by R. Peeters, advocaat,— the European Commission, by M. van Beek and D. Roussanov, acting as Agents,having decided, after hearing the Advocate General, to proceed to judgment without an Opinion,gives the following

Judgment

1This request for a preliminary ruling concerns the interpretation of point 14 of Annex I to Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market and amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council and Regulation (EC) No 2006/2004 of the European Parliament and of the Council (‘Unfair Commercial Practices Directive’) (OJ 2005 L 149, p. 22).

2The request has been made in proceedings between Loterie Nationale — Nationale Loterij NV van publiek recht (‘Nationale Loterij’) and Mr Paul Adriaensen, Mr Werner De Kesel and The Right Frequency VZW concerning the establishment and promotion of a scheme of collective participation in the public lotteries in Belgium under the name ‘Lucky4All’ (‘the Lucky4All scheme’).

Legal context

3Recital 8 of Directive 2005/29 reads as follows:‘This Directive directly protects consumer economic interests from unfair business-to-consumer commercial practices. …’

4Recital 17 of Directive 2005/29 states:‘It is desirable that those commercial practices which are in all circumstances unfair be identified to provide greater legal certainty. Annex I therefore contains the full list of all such practices. These are the only commercial practices which can be deemed to be unfair without a case-by-case assessment against the provisions of Articles 5 to 9. The list may only be modified by revision of the Directive.’

5Article 1 of that directive provides:‘The purpose of this Directive is to contribute to the proper functioning of the internal market and achieve a high level of consumer protection by approximating the laws, regulations and administrative provisions of the Member States on unfair commercial practices harming consumers’ economic interests.’

6Article 2(d) of the directive provides:‘For the purposes of this Directive:(d) “business-to-consumer commercial practices” (hereinafter also referred to as commercial practices) means any act, omission, course of conduct or representation, commercial communication including advertising and marketing, by a trader, directly connected with the promotion, sale or supply of a product to consumers.’

7Under Article 3(1) of the directive:‘This Directive shall apply to unfair business-to-consumer commercial practices, as laid down in Article 5, before, during and after a commercial transaction in relation to a product.’

8Article 5 of the directive provides:1. Unfair commercial practices shall be prohibited.2.A commercial practice shall be unfair if:(a) it is contrary to the requirements of professional diligence,and(b) it materially distorts or is likely to materially distort the economic behaviour with regard to the product of the average consumer whom it reaches or to whom it is addressed, or of the average member of the group when a commercial practice is directed to a particular group of consumers.…4.In particular, commercial practices shall be unfair which:(a) are misleading as set out in Articles 6 and 7,or(b) are aggressive as set out in Articles 8 and 9.5. Annex I contains the list of those commercial practices which shall in all circumstances be regarded as unfair. The same single list shall apply in all Member States and may only be modified by revision of this Directive.’

9Annex I to the directive, headed ‘Commercial practices which are in all circumstances considered unfair’, includes in point 14:‘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.’

The dispute in the main proceedings and the question referred for a preliminary ruling

10Nationale Loterij is a limited company governed by public law established in Belgium, where it is responsible for organising public lotteries. By an application to the Rechtbank van koophandel te Antwerpen, afdeling Antwerpen (Commercial Court, Antwerp, Antwerp section, Belgium), it sought inter alia a declaration that the Lucky4All scheme is a prohibited pyramid promotional scheme, or at least a misleading commercial practice.

11By judgment of 7 October 2014, that court held that the establishment and promotion of the Lucky4All scheme did indeed constitute a misleading commercial practice. On the other hand, it found that one of the conditions identified by the Court in its judgment of 3 April 2014, 4finance (C‑515/12, EU:C:2014:211), for classifying a commercial practice as a ‘pyramid promotional scheme’ within the meaning of point 14 of Annex I to Directive 2005/29 was not satisfied. More precisely, the court took the view that it had not been shown that the funding of the compensation paid out to existing members of the Lucky4All scheme depended ‘primarily’ or ‘mostly’ on the financial contributions of new members.

12Nationale Loterij appealed against that judgment to the Hof van beroep te Antwerpen (Court of Appeal, Antwerp, Belgium), in particular on the ground that at first instance it had been wrongly held that the Lucky4All scheme was not a prohibited pyramid promotional scheme.

13The referring court observes in this respect that the Lucky4All scheme allows groups to be formed of persons who wish to take part in the Lotto draws offered by Nationale Loterij. The basic idea underlying the scheme is that players mutually increase their chances of winning if they play together. A complete group of players as envisaged by the scheme forms a pyramid of eight levels and allows 9841 combinations to be played at the same time.

14On joining, each new participant in the Lucky4All scheme makes an initial payment of EUR 10 for a ‘starter pack’, followed by a monthly contribution of about EUR 43. The monthly contribution is for the purchase of Lotto tickets. After paying his monthly contribution, a player can fill in a form online allowing him to choose 10 Lotto combinations a week. A representative of the scheme then delivers all the participants’ Lotto coupons to a sales point. In the event of a win, the winnings are divided in accordance with a predetermined formula. More precisely, the winner of a combination receives 50% of the total prize money and 40% is allocated to the eight levels above that combination, with the Lucky4All scheme itself occupying the first four levels in each group, the first players being admitted only from level five. The remaining 10% of the prize money is reinvested in the purchase of new combinations. Finally, no winnings over one million euros are paid to players, whose possible winnings are capped at that figure.

15The referring court notes that it follows from the judgment of 3 April 2014, 4finance (C‑515/12, EU:C:2014:211), that the prohibition of pyramid promotional schemes as defined in Annex I to Directive 2005/29 is based on three cumulative conditions. In the present case, according to that court, it is common ground that the Lucky4All scheme satisfies the first two conditions. It promises a commercial advantage in the form of improved chances of winning, and the realisation of that promise depends on the introduction of ever more new players.

16As to the third condition, the referring court notes that it is satisfied only if the contributions of new members essentially fund the compensation paid to existing members. That condition thus requires the existence of a financial link between the contributions paid in and the compensation paid out. It is not certain, however, that a scheme can be prohibited where that link is only indirect. The referring court considers that the Court did not take a clear position on that point in the judgment of 3 April 2014, 4finance (C‑515/12, EU:C:2014:211).

17In those circumstances, the Hof van beroep te Antwerpen (Court of Appeal, Antwerp) decided to stay the proceedings and to refer the following question to the Court for a preliminary ruling:‘Does the application of point 14 of Annex I to Directive 2005/29 … require that a prohibited pyramid promotional scheme exists only if the realisation of the financial promise to existing members:depends primarily or mostly on the direct transfer of the contributions of the new members (“direct link”),ordoes it suffice that the realisation of the financial promise to existing members depends primarily or mostly on an indirect payment through the contributions of existing members, i.e. existing members do not obtain their compensation primarily or mostly from their own sale or their own consumption of goods or services, but depend for the realisation of the financial promise primarily or mostly on the introduction and contributions of new members (“indirect link”)?’

Consideration of the question referred

18As a preliminary point, it should be noted that in the main proceedings the referring court has to determine whether the Lucky4All scheme must be prohibited pursuant to point 14 of Annex I to Directive 2005/29.

19The Court has previously held that the prohibition of ‘pyramid promotional schemes’ within the meaning of point 14 of Annex I to Directive 2005/29 is based on three cumulative conditions. First, the promotion is based on the promise that the consumer will have the opportunity of obtaining a commercial advantage. Next, the realisation of that promise depends on the introduction of other consumers into the scheme. Finally, the greater part of the revenue to fund the compensation promised to consumers does not result from a real economic activity (see, to that effect, judgment of 3 April 2014, 4finance, C‑515/12, EU:C:2014:211, paragraph 20).

20According to the referring court, the organisers of the Lucky4All scheme have established and promote an especially complex system of collective participation in the Lotto draws offered by Nationale Loterij which satisfies the first two conditions set out in the preceding paragraph.

21First, consumers are attracted by the promise of being able to obtain an economic advantage, in that collective participation in the Lotto considerably increases their chances of winning in that game of chance.

22Secondly, according to the order for reference, the realisation of that promise requires the participation of ever more players, which is a direct result of the actual organisation and logic of the Lucky4All scheme. The groups of players take the form of pyramids, the first four levels of which are occupied by the scheme itself. As the distribution of winnings within a group favours the higher levels, it is principally the scheme which benefits from the increased chances of winning, and also to some extent the existing players who have recruited other members. Every player therefore has an interest in recruiting new players, in order to improve his relative position.

23The referring court is uncertain, by contrast, as to whether the third condition, on the funding of the financial promise, is satisfied, in so far as paragraph 28 of the judgment of 3 April 2014, 4finance (C‑515/12, EU:C:2014:211), could be interpreted as meaning that the promise must be funded directly by the contributions of new members.

24Consequently, by its question the referring court is essentially asking whether point 14 of Annex I to Directive 2005/29 must be interpreted as allowing a commercial practice to be classified as a ‘pyramid promotional scheme’ even if, in its view, there is only an indirect link between the contributions paid by new members of such a scheme and the compensation paid to existing members.

25It should be recalled that the Court has previously held that, where there is no real economic activity to generate enough income to fund the compensation promised to consumers, a pyramid promotional scheme is necessarily based on the economic contribution of its participants, since the opportunity for a member of the scheme to receive compensation depends essentially on the fees paid by additional members (judgment of 3 April 2014, 4finance, C‑515/12, EU:C:2014:211, paragraph 21).

26Such a scheme can only be a ‘pyramid’ scheme, in that its sustainability requires the subscription of an ever increasing number of new participants to fund the compensation paid to existing members. It also means that the most recent members are less likely to receive compensation for their participation. The scheme ceases to be viable when the growth in membership, which should theoretically tend to infinity in order for the scheme to continue, is no longer sufficient to fund the compensation promised to all participants (judgment of 3 April 2014, 4finance, C‑515/12, EU:C:2014:211, paragraph 22).

27It follows that classification as a ‘pyramid promotional scheme’ within the meaning of point 14 of Annex I to Directive 2005/29 requires that the members of such a scheme pay a financial contribution (judgment of 3 April 2014, 4finance, C‑515/12, EU:C:2014:211, paragraph 23).

28For the same reasons, that classification requires the existence of a link between the contributions paid by new members and the compensation received by existing members (see, to that effect, judgment of 3 April 2014, 4finance, C‑515/12, EU:C:2014:211, paragraph 27).

29As to the nature of that link, it may be seen from the wording of most language versions of point 14 of Annex I to Directive 2005/29 that the funding of the compensation that a consumer may receive depends ‘primarily’ or ‘mostly’ on the contributions subsequently paid by new participants in the scheme (see judgment of 3 April 2014, 4finance, C‑515/12, EU:C:2014:211, paragraph 28).

30It cannot, on the other hand, be deduced from the wording of that provision that the required financial link must necessarily be direct. What matters is the description ‘primarily’ or ‘mostly’ applicable to the contributions paid by new participants in the scheme. Point 14 of Annex I to Directive 2005/29 is therefore capable of applying to a scheme in which there is an indirect link between the contributions paid by new members and the compensation received by existing members.

31Moreover, a contrary interpretation of that provision could deprive it of effectiveness, since the requirement of a direct link would make it possible easily to evade the absolute prohibition of pyramid promotional schemes.

32With respect to the financial link required for there to be such a ‘pyramid promotion’, it appears from the documents before the Court that in the present case the chances of winning are linked to the unlimited introduction to the Lucky4All scheme of new players, which is itself subject to a joining fee and regular stakes. Furthermore, it seems that the capping of wins, which becomes more probable as the number of players increases, also contributes to the funding of the scheme. Such a financial link would appear to be indirect but certain. It is, however, for the referring court to check those points.

33In any event, a scheme such as the Lucky4All scheme appears to meet the conditions for classifying it as a ‘commercial practice’ within the meaning of Annex I to Directive 2005/29, in that its aim is to generate a profit for itself, that is, for the promoters of the scheme, and not only for the players. It is for the referring court to satisfy itself of this.

34Having regard to all the foregoing, the answer to the question referred is that point 14 of Annex I to Directive 2005/29 must be interpreted as allowing a commercial practice to be classified as a ‘pyramid promotional scheme’ even if there is only an indirect link between the contributions paid by new members of the scheme and the compensation paid to existing members.

Costs

35Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

Operative part

On those grounds, the Court (Sixth Chamber) hereby rules: Point 14 of Annex I to Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market and amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council and Regulation (EC) No 2006/2004 of the European Parliament and of the Council (‘Unfair Commercial Practices Directive’) must be interpreted as allowing a commercial practice to be classified as a ‘pyramid promotional scheme’ even if there is only an indirect link between the contributions paid by new members of the scheme and the compensation paid to existing members.