Federal Court finds Lyoness scheme not pyramid

23 October 2015

The Federal Court has found that a loyalty program operated by Lyoness Australia Pty Ltd does not contravene the pyramid and referral selling provisions of the Australian Consumer Law (ACL), following action by the Australian Competition and Consumer Commission.

The Lyoness program includes the ability for members to earn various rebates and bonuses from shopping.  It also includes ways for consumers to earn bonuses if they introduce new members who also shop or make down payments on future shopping.

Whilst cash back offers themselves are not prohibited by the ACL the ACCC alleged that the Lyoness scheme also offers commissions to members who recruit new members who make a down payment on future shopping.

The Federal Court found that: “there can be no doubting the fact that inducements were held out to prospective Members that they would ultimately receive “financial benefits” other than the discounts they received on purchases made from Loyalty Merchants”.

However, the Court found that any entitlement to receive a benefit was occasioned - not by the introduction of the new Members - but from the pursuit of shopping activity by those new Members and the shopping activities of further new Members who, in turn, may have been introduced by such new Members. The ACCC also failed to establish that persons could become Members only by making down payments.

The Court made similar findings about “referral selling” conduct.

Justice Flick noted: “The manner in which pyramid selling schemes operate...is ‘complex and elusive.’ The present Lyoness Loyalty Program is no exception”.

ACCC Chairman Rod Sims said: The judgment echoed some of the concerns the ACCC had with the scheme, in particular its complexity and the inducements that were held to prospective members”.

“The ACCC will continue to investigate schemes that encourage consumers to recruit new members. We will take action where appropriate to ensure consumers are not drawn into schemes where the financial benefits held out to induce potential members to join up rely substantially on the recruitment of further new members into the scheme,” Mr Sims said.

The ACCC is carefully considering the judgment.

Background

Pyramid schemes involve new participants providing a financial or other benefit to other existing participants in the scheme. New participants are induced to join substantially by the prospect that they will be entitled to benefits relating to the recruitment of further new participants.

Pyramid schemes may also offer products or services, but making money out of recruitment is their main aim, and often the only way for a member to recover any money is to convince other people to join up. In contrast, people in legitimate multi-level marketing schemes earn money by selling genuine products to consumers, not from the recruiting process.

Release number: 
MR 205/15
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