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Amway UK Appeals Opinion

Amway UK Appeals Opinion

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Published by Kevin Thompson

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Published by: Kevin Thompson on Dec 13, 2009
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03/13/2013

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NeutralCitationNumber:[2009]EWCACiv32CaseNo:
A212008/1525
IN
THE
SUPREMECOURT
OF
JUDICATURECOURTOFAPPEAL(CIVILDIVISION)ONAPPEALFROMHIGHCOURT,CHANCERYDIVISION,COMPANIESCOURT
MR
JUSTICENORRIS
[2008J
EWHC(Ch)
1054
RoyalCourts
of
JusticeStrand,London,WC2A
2LT
Date:
29/0112009
Before:LORDJUSTICERIXLORDJUSTICETOULSONandLORDJUSTICERIMERBetween:SECRETARY
OF
STATE
FOR
BUSINESS,ENTERPRISEANDREGULATORYREFORM-
and-
AMWAY(UK)LTDAppellant
1
ClaimantRespondent
1
Defendant
Mr
Mark
Cunningham
QC
and
Mr
AndrewWestwood(instructed
by
TreasurySolicitors)fortheAppellant
1
Claimant
Mr
DavidChivers
QC
and
Mr
PhilipGillyon(instructed
by
MessrsEversheds)fortheRespondent
1
DefendantHearingdates:Monday8
th
,Tuesday9
th
and
Wednesday
lOth
December
JudgmentApprovedbythecourtforhandingdown
If
this
Judgment
has
been
emailed
to
you
it
isto
be
treated
as
'read-only'.
You
should
seud
any
suggested
amendments
as
a
separateWord
document.
 
,Judgment
Approved
bv
the
court
for
han'ding
down
(subject
to
editorialcorrections)
Lord
JusticeRix
:
BERRv
AMWA
Y
(UK)
LTD
1.
Thetrialjudge,NorrisJ,exerclsmghisjurisdictionundersection
l24A
of
theInsolvencyAct1986towindupacompanyinthepublicinterest
if
hethinksitjustandequitabletodoso,refusedthepetition
of
theSecretary
of
StateforBusiness,EnterpriseandRegulatoryReform(the"Secretary
of
State")towindupAmway(UK)Limited("thecompany").Hedidsobecauseheconsideredthatthecompany'snewbusinessmodel,whichwasalready(inlargepart)inoperationatthetime
of
trial,eliminatedthedefects
of
theoldbusinessmodel;andalsointhelight
of
undertakingswhichthecompanyoffered,theSecretary
of
Statehaddeclined,butthejudgeacceptedasacondition
of
hisorder.Thereisadisputewhichthiscourtwillhavetoresolveastotheimportance
of
therole
of
theseundertakingsforthe
judge's
ultimatedecisiontorefusethepetitiontowindup.
On
thewaytothatultimatedecisionthe
j ~ d g e
had
madesome
~ t ! D ! 1 g f i ! 1 d i n g s a b O P t .
IbeQld
hU8i.ness
model
..
i'!lheitQll
a.
relativelynarrowbasis.Hesaidthat
if
thematterhadstoppedthere,hewouldhavewoundupthecompany.
2.
Thefactualpositioninanutshell,necessarilyover-condensedatthisstage,isthis.Thecompanyispart
of
aninternationalgroupwhichoperatesamulti-leveldirectsellingbusinessinpersonalandhomecareproducts.Atthetimewhenthepetitionwassoughtthecompanyhadbeenturningoversome£13millionperyear,albeitunprofitably.Amway'sbusinessintheUnitedKingdomhadbeeninexistenceforsomethirtyyears.Thesellingwascarriedoutbymembers
of
thepublic,socalledindependentbusinessoperatorsor
!Bas,
whointurnrecruitedother
!Bas,
aithoughnewIBOscouldalsoberecruiteddirectlyviathecompany'swebsite.Recruitseatnedbonusorcommissiononboththeirownsalesandalsothesales
of
allrecruitsintheirdownline(ietheirrecruits,orrecruits
of
theirrecruits,andsoon),butitwasdifficultforlargesumstobeearnedby
!Bas
withoutlong-termsuccessinrecruitingamotivateddownline.Themajority
of
!Bas
merelyself-purchasedandearnednothingatall.Onlyaverysmallminorityearnedlargesumsbyway
of
bonus.Anewrecruitpaid£28onrecruitment(thecosttothecompany
of
astarting-upkitcomprisingbrochures,orderforms,pricelistsandthelike)andthereafterarenewalfee
of
£
18
peryear.An!BOcouldleaveatanytime(on30daysnotice)andrecoverthepurchaseprice
of
anyproducts(lessahandlingcharge
of
7.5%)
if
returnedingoodcondition.3.Thefaultwhichthejudgefoundagainstthecompanywasessentiallythatithadfailedtosuperviseandcontroltherepresentationsandpromotionalmaterialusedbyitsown
!Bas
intheirownrecruitment.Thejudgeacquittedthecompanyitself
of
anymisrepresentation(bywhathecalledafinemargin)buthecriticiseditseverelyforitsfailuretocontrolits
!Bas.
Theirmisrepresentations(whichthejudgedescribedatone
s u g g ~ : . : s t i 8 n ·
that\vas,'
c:ls!cr·
to··
p r 0 s p ~ r
as-un,IRQ,
·than·,l,va.s-in
fact
the,·easei>
Some
!Bas
misrepresentedtheirownincomefrombonuses.Theyweresellingadream,whereastherealitywasdifferent.Thejudgeinferredthatpeopleboughtintothatdreamandwerethusdeceived.
 
Court
of
AppealUnapprovedJudgment:
No
permission
is
grantedtocopyoruse
in
court
BERRv
AMWA
Y
(UK)
LTD
4.
TheSecretary
of
Statehadoriginallyputhiscaseonamuchwiderbasis.
It
wasallegedthatthecompany'sbusinesswasanunlawfullotterycontrarytosectionI
of
theLotteriesandAmusementsAct1976and/or
an
unlawfultradingschemecontrary
to
section120
of
theFairTradingAct1973.
It
becamecommongroundshortlybeforetrial,however,thatthenewbusinessmodelcouldnotbe
so
criticisedoneitherscore,
if
onlybecause
of
theabsenceunderthenewmodel
of
anyinitialorannualrenewal
fee
foranlBO.Thejudgefoundthattheoldbusinessmodelwasnotanunlawfultradingscheme,andthatthenewbusinessmodelwasnotanunlawfullottery,butdidnotfeelitnecessarytodealintermswithwhethertheoldbusinessmodelwasalottery.
It
might
be
saidthatthejudge'slogicindealingwiththelotteryissue(seeparas68/69)compelledafindingthattheoldbusinessmodelcouldalsobeacquittedofthcch"rge,'·cspecia!!y.as·theJudge.h:Jd,.no
.
n ~ ~ d . J o I l 1 a l q ~ . f i J 1 < : U n g ~ , j 1 } X ~ § P ~ ( ; , ~ 5 ) ! J ~ ~
newbusinessmodel.Thatthatwasthejudge'sessentialview
is
alsosuggestedbyhisremark(atpara62)inaskinghimselfhowheshoulddispose
of
thepetition"assumingthe"lottery"and"fairtrading"groundsarealsonotmadeout".Butbethatasitmay,onthisappealtheSecretary
of
State,byhisrespondent'snotice,soughttoraiseagaintheallegationsthattheoldbusinessmodelwasanunlawfullotteryand/orunlawfultradingscheme,andperseveredinthosesubmissionsinhisskeletonargumentforthisappeal.
It
wassubmittedthat,eventhoughitcontinued
to
beacceptedthatthenewbusinessmodelcouldnotbeattackedoneither
of
thesegrounds,theunlawfulness
of
theoldmodelwouldsupporttheSecretary
of
State'sbroadercasethatthecompanyshouldhavebeenwoundup.However,theSecretary
of
Statedidnotpersevereinthosegroundsatthehearing.Thus,there
is
no
longeranyallegationthatthecompany'sbusiness
is
orhasbeenunlawfulunderthe1973or1976Acts.
5.
Onthisappeal,theSecretary
of
Statesubmitsthatthejudgehasfundamentallymisunderstoodhisjurisdiction.
If
heconsidered,ashedid,thattheoldbusinessmodelwascommerciallyunacceptable(or"inherentlyobjectionable"
to
useajurisprudentialglosswhichhasbeenadoptedasaform
of
label),thenhehad
no
effectiveoptionotherthan
to
wind
up
thecompany.Torefuse
to
do
so
because
of
changestothebusinessmodelwhichwerereactive
to
theSecretary
of
State'sinterestinthecompanywaswronginprinciple.
It
wasalsowronginprinciple
to
acceptanyundertakings
as
acondition
of
therefusal
of
thepetitionincircumstanceswheretheSecretary
of
Statewasnotcontentwiththeacceptance
of
suchundertakings.Thedecisioninthiscasewas"aberrant".
6.In
response,thecompanysubmitsthatthejudgeactedwithinhisjurisdictionandthattherestwas
an
exercise
of
discretionwhichcannot
be
faulted.Thejudgewasentitled
t . . . T i ; ; , ; f ~ D c . , z l : ; ; · · · · · F ' c t 1 t i D n · · , d s c ; p , ; : t G f h e f i , g d i n g t h ~ t . · t h e
.
cQmp!1ny.·
W Q l d 4 : h f l ; Y ~ p y y n : W Q H n g
.
llP
ifi
tvvcTcstil1
pursuing:
tsold
,business·.
rr10del
The
judgehadtn
d e c i d ~ " w h ~ t h ~ r J t , w a s
justandequitable
at
thetime
of
trial
for
thecompany
to
bewound
up.
Thejudgewasentitled
to
acceptundertakingsfromthecompany,even
if
historicallysuchorderswereunusualintheabsence
of
theSecretary
of
State'sconsent.
In
anyevent,thejudgedidnotrefusethepetitionbecause
he
waswilling
to
acceptthecompany's

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