Avalanche sale - is it always an act of unfair competition?

Service

Sales can take place in many different forms - traditional, installment payments, self-service, pre-selection, and avalanche. The latter form, however, should not be used by honest entrepreneurs. The reason is against the law. In the article you will learn what avalanche sales are and whether they always constitute unfair competition.

Sales agreement

By the contract of sale, the seller undertakes to transfer ownership of the item to the buyer and hand it over to him, and the buyer undertakes to collect the item and pay the seller the price - this definition of sale is included in the Civil Code.

In fact, the sales contract is not only subject to specific provisions of the Civil Code, but also to regulations contained in other acts. Therefore, not every form of sale is legally allowed, some are very clearly prohibited - they include, among others avalanche sale. Remember, however, that there are some important exceptions that allow this form of commercial transaction.

Judgment of the SA in Warsaw of May 23, 2019 (file reference number VII Aga 1360/18)

Pursuant to Art.535 § 1 of the Civil Code, the sales contract was shaped by the legislator as a bilaterally binding contract - the seller undertakes to transfer the ownership of the item and its delivery, and the buyer to collect the item and pay the price. Art. 535 § 1 of the Civil Code does not regulate the transfer of ownership of a thing itself, and above all it does not specify whether and at what time the contract of sale entails the effect of transferring the ownership of a thing. This issue is regulated by Art. 155 of the Civil Code, which assumes as a rule that the contract obliging to transfer ownership transfers ownership, therefore there is no need to conclude an additional disposing contract.

Avalanche sale

The concept of an avalanche sale is included in Art. 17c of the Act on combating unfair competition. According to it, an act of unfair competition is the organization of an avalanche sales system consisting in proposing the purchase of goods or services by making a promise to the buyers of these goods or services to obtain material benefits in exchange for persuading other people to make the same transactions, which would obtain similar material benefits as a result of inducing more people to participate in the system.

In order to be able to talk about a prohibited avalanche sale, it is not necessary to actually sell a given good or service - it is enough for the entrepreneur to submit an effective offer, propose an avalanche transaction. In practice, such a sale is also referred to as a pyramid-type promotional system. The basic factors determining whether we are dealing with avalanche sales are:

  • promotion based on the promise that the consumer will have the opportunity to obtain an economic benefit (e.g. buy a large amount of the products in question and you will receive a refund);

  • the fulfillment of this promise depends on joining the system of other consumers - the financial benefit will only arise when the buyer encourages as many other people as possible to the transaction;

  • most of the income that funds the promised consumer wage is not the result of actual business activity - the avalanche seller makes a living not so much by selling the products or services offered, but by attracting more and more customers leaving their money with them.

Avalanche sale that meets the above conditions is treated under Polish law not only as an act of unfair competition, but also as a crime and practice violating collective consumer interests.

Annex I, point 14 to Directive 2005/29 / EC

Setting up, operating or promoting pyramid schemes whereby the consumer performs a service in return for the possibility of receiving remuneration, which depends primarily on the introduction of other consumers into the system and not on the sale or consumption of products.

Avalanche sale - responsibility

An entrepreneur committing avalanche sales must take into account liability on many different levels, also in the field of criminal law. First of all, the dishonest trader is exposed to liability for damages towards his contractors (the amount of compensation is higher, the greater the damage suffered by the buyer). Secondly, the Office of Competition and Consumer Protection has the right to impose a financial penalty on the entrepreneur in the amount of 10% of the turnover achieved by him. Third, the avalanche seller must take into account criminal liability - because anyone who organizes an avalanche sales system or manages such a system is subject to imprisonment from 6 months to 8 years. a buyer or a person encouraged to enter the avalanche sales system (this is a so-called ineffective crime).

Criminal liability in the event of an avalanche sale is relatively high. The currently used penalties are justified by the particular danger of such acts, which was evident, for example, in the case of the famous Amber Gold financial pyramids.

Avalanche sale allowed

It turns out that selling in an avalanche system does not have to be completely illegal. The legislator introduces important exceptions that exclude the liability of such a seller. It is not an act of unfair competition to organize an avalanche sales system if the following conditions are met:

  • material benefits from participation in the sales system come from the funds obtained from the purchase or sale of goods and services at a price whose value may not grossly exceed the actual market value of these goods and services;

  • a person resigning from participation in the sales system has the right to resell the system organizer for at least 90% of the purchase price of all salable goods, information and instructional materials purchased from the organizer, samples of goods or presentation sets purchased within 6 months preceding the date of resignation to the organizer sales system.

Therefore, an act of unfair competition is not the so-called multi-level marketing (in practice it is based on the same principles as avalanche sales, but it is not penalized by the Polish legislator).

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Avalanche sale - how to report?

Law enforcement authorities rarely find avalanche sellers on their own, and the help of aggrieved buyers turns out to be indispensable here. If we suspect that we have fallen victim to an avalanche sale or we have received an offer to participate in such a transaction, the matter should be immediately reported to the police, the prosecutor's office and the Office of Competition and Consumer Protection.

After the notification, the competent authorities take appropriate investigative steps and if our suspicions turn out to be justified, the perpetrator will be held liable. In the event that the buyer has suffered any damage in connection with the concluded sales contract, he may demand a refund of the price paid and the payment of appropriate compensation (the amount of compensation is determined by the buyer himself). Obtaining a conviction of a given person for the offense of selling avalanche will be helpful in the process of collecting money from the perpetrator. However, in order to obtain appropriate compensation and reimbursement of the price paid, it is necessary to initiate a court case - for this purpose, we file a claim for payment, to which it is worth attaching the seller's conviction. An alternative is also to prepare a pre-litigation request for payment, in which we will inform the dishonest entrepreneur about the obligation to return the sale price and pay appropriate compensation under the pain of bringing the case to court.

Avalanche sale - summary

Avalanche sale is a form of a financial pyramid, which is considered an act of unfair competition and a crime under Polish and European Union law. It consists in offering or inducing to buy goods or services while making a promise to obtain material benefits in exchange for persuading other people to make the same transactions. The legislator, however, provided that certain forms of avalanche sales are allowed, which was clearly specified in the Act on Combating Unfair Competition.