GB - Secretary of State for Business Enterprise & Regulatory Reform v Amway (UK) Ltd

Judgment

Mr Justice Norris :

I shall not order Amway to be compulsorily wound up, but will dismiss the petition if Amway will give the voluntary undertakings handed up during the course of the hearing (with one addition).

The business now conducted by Amway (UK) Ltd (“Amway”) has been conducted in this country for some thirty years. So far as the evidence discloses its basic business model has remained more or less the same throughout that period, though it was subject to significant revision in October 2007. The same basic business model is used in about 80 countries worldwide. Amway is involved in direct selling. It sells something over £10 million of products in the UK each year. It markets its own and third party products directly to consumers through a network of independent sellers known as Independent Business Owners (“IBOs”). The structure adopted for the direct selling network is what has come to be known as “multilevel marketing”. Such a structure encourages existing IBOs to recruit additional sellers whose sales (and the further sales of those whom such additional sellers in turn recruit, level by level) benefit the original IBO through a bonus structure that I will need later to explain. The resulting business organisation might be expected to resemble a pyramid with (at the top) a very few people whose earnings are generated by the layers of recruiters underneath them and (at the base) a large number of direct sellers whose income is derived solely from what they manage to sell. For each IBO there will be above them a “sponsorship chain” (the person who recruited them, and who in turn recruited the IBO’s recruiter, and so on) who will benefit from sales made by the IBO and that IBO’s downline: and below them a “downline” (those whom the IBO has recruited, and those who in turn have been recruited by the IBO’s recruits and so on) whose sales will benefit the IBO.

The evidence of Mr Richard Berry, the director of The Direct Selling Association and current chairman of The Federation of European Direct Selling Associations is that for most of the last twenty years the majority of direct selling companies in the UK have operated on a single level structure, but that this had now changed and the majority now operate on a multilevel basis where the rewards of some are to a greater or lesser extent determined by the sales efforts of others.

One of the risks inherent in a multilevel marketing structure is that (because it offers participants both

Judgment

Mr Justice Norris :

I shall not order Amway to be compulsorily wound up, but will dismiss the petition if Amway will give the voluntary undertakings handed up during the course of the hearing (with one addition).

One of the risks inherent in a multilevel marketing structure is that (because it offers participants both

Secretary of State for Business Enterprise & Regulatory Reform v Amway (UK) Ltd

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