To what extent does EU consumer law implemented in the UK provide a high level of consumer protection for UK project backers against misleading commercial practices by project creators concerning the risks of delay, non

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To what extent does EU consumer law implemented in

the UK provide a high level of consumer protection for

UK project backers against misleading commercial

practices by project creators concerning the risks of

delay, non-delivery and non-conformity in RBCF

transactions?

Name: Tawnee Hill

Word count: 13,140

Submission date: 23 July 2018

Programme: European Private Law LLM

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Abstract: Rewards-based crowdfunding (‘RBCF’) occupies uncertain territory within the EU consumer protection landscape. RBCF campaign creators provide valuable rewards to individual campaign backers in exchange for their financial contribution, which is often used to fund the production of the reward itself. The non-traditional environment in which this transaction occurs poses challenges for the shop-orientation of European consumer law, specifically in protecting backers’ consumer rights when RBCF projects fail.

In writing this thesis I have two goals. First, I aim to determine whether RBCF project creators may be classified as traders, and backers as consumers, under EU consumer law, and, whether the creator-backer transaction is a contract for sale. Second, I aim to assess whether the UK’s implementation of EU consumer law offers a high level of protection to backers vis-à-vis creators. I undertake this assessment using the Consumer Protection from Unfair Trading Regulations (‘CPUTRs’), which transpose the Unfair Commercial Practices Directive into UK law, as a test case for EU consumer law implemented in the UK.

My initial inquiry into the applicability of consumer law to RBCF is undertaken through an internal, doctrinal approach that seeks to understand and define the current legal position, before utilising qualitative and quantitative empirical research methods to test and illustrate the initial findings. Subsequently, I use objectives set out in the European Commission’s European Consumer Agenda to assess the extent to which European consumer law implemented in the UK provides a high level of protection to the right of UK backers to not be deceived by a creator, when backing an RBCF campaign.

I conclude that the creator-backer transaction is a contract for sale and that EU consumer law applies, in principle, to the creator-backer relationship. Regarding the level of protection offered to UK backers, I conclude that the test case of the CPUTRs, in relation to misleading misrepresentations and omissions, shows that UK consumer law achieves a relatively low level of protection. The exclusion of misleading omissions from the CPUTRs’ private redress mechanism, the relative expense of, and difficulty in, attending court proceedings, and, more broadly, the lack of UK public agency enforcement action and challenges of regulating novel platform-based and information-rich e-commerce reduce the level of consumer protection. This finding gives rise to a call to reconsider the best way forward to ensure backer protection and continued RBCF-based growth in a rapidly changing technological and economic landscape.

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1. Introduction

1.1 The puzzle of applying EU consumer law to RBCF

Over the past decade rewards-based crowdfunding (‘RBCF’) has emerged as a significant source of entrepreneurial financing, bridging the gap between self-funding for new projects and traditional venture capital investment. Much of the current academic research focusses on RBCF’s value in generating seed capital for start-ups and small businesses, with a leading empirical RBCF study of 47,188 project backers identifying a 9% project ‘failure’ rate for successfully funded campaigns on Kickstarter, the world’s largest RBCF platform by transaction volume (‘Kickstarter Study’).1

Viewed through an entrepreneurship lens, the failure rate shown by the Kickstarter Study seems low, particularly when compared to the average venture capital-backed start-up failure rate of 75%.2_{Indeed, the Kickstarter Study’s author concluded that failure to deliver agreed rewards}

was ‘relatively rare’.3_{However, seen from the perspective of consumer protection, in which}

‘failure’ may be discussed in terms of delayed delivery, non-delivery and non-conformity, the Kickstart Study’s finding of a 9% failure rate appears unsatisfactorily high. By applying the Kickstarter Study’s findings to Kickstarter’s current project data, I determine that, for Kickstarter alone, lost backer contributions from successfully funded but failed projects total approximately US$0.342 billion globally since 2009.4

Adopting a consumer protection frame of reference to consider the Kickstarter Study’s results raises the question of why European Union (‘EU’) consumer law does not appear to feature in RBCF. It is clear that if EU consumers enter into contracts for the purchase of goods with EU traders in an online shop environment, national consumer laws (which are mostly derived from the EU consumer acquis) apply. Furthermore, if 9% of these traditional shop-based transactions failed due to non-delivery, delay or non-conformity, and the purchased items were neither

1 Ethan Mollick, ‘Delivery Rates on Kickstarter’ (2015) 2 <https://papers.ssrn.com/sol3/papers.cfm? abstract_id=2699251> ‘Failure’ means failure to deliver the ‘promised rewards’ 4

2 Steve Blank, ‘Why the Lean Start-Up Changes Everything’ (May 2013) HBR < https://hbr.org/2013/05/why-the-lean-start-up-changes-everything> accessed 24 February 2018

3 Mollick (n 1) 6

4 I calculated this figure using Kickstarter’s publicly available data. See: Kickstarter, ‘Stats’ (Kickstarter, 2018) <https://www.kickstarter.com/help/stats> accessed 20 July 2018.

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delivered, nor payment refunded, this would constitute a clear contravention of EU consumer law.5_{However, despite the 9% failure rate highlighted by the Kickstarter Study, recourse to EU}

consumer law is uncommon in the area of RBCF transactions.

Drawing on this apparent paradox, my thesis aims to answer the following research question: “To what extent does EU consumer law, as implemented in the UK, provide a high level of

consumer protection for project backers against misleading commercial practices by project creators concerning the risks of delay, non-delivery and non-conformity in RBCF transactions for the supply of goods-based rewards?’

Whether RBCF is subject to EU consumer law is currently unclear. Analysis of the relationships in RBCF to which EU consumer law rights and obligations may be attributed is incomplete. Additionally, there is limited guidance available as to when a consumer-trader relationship exists and when a contract for sale is concluded in RBCF. In short, the applicability of EU consumer law to RBCF has attracted little academic attention, leaving open the question of how disputes between parties to a RBCF transaction are to be decided.

This thesis aims contribute to existing scholarship by resolving the current uncertainty regarding the applicability of EU-derived consumer law to the creator-backer RBCF relationship in the UK. Furthermore, my thesis assesses whether EU-derived consumer law, which forms most of the UK’s national consumer law, offers a high level of consumer protection to UK RBCF backers vis-à-vis the creators of RBCF campaigns.

1.2 Thesis trajectory

My thesis is presented in seven chapters and follows the following trajectory. First, I set out a range of terms and concepts relevant to RBCF and describe the evolution and function of RBCF in the EU internal market (Chapter 2). Next, I characterise the relationships between each party to a RBCF transaction according to doctrinal English contract law (Chapter 3). Upon completion of this analysis, I narrow my focus to the creator-backer relationship in RBCF for the remainder of the thesis.

5 Citizens Advice, ‘If something you ordered hasn’t arrived’ (Citizens Advice, 2018)

https://www.citizensadvice.org.uk/consumer/somethings-gone-wrong-with-a-purchase/if-something-you-ordered-hasnt-been-delivered/ accessed 29 May 2018

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In Chapter 4, I determine whether EU consumer law applies to the creator-backer relationship which arises during a RBCF transaction, as discussed in Chapter 3. I also set out the key EU consumer rights and obligations applicable to this relationship, before introducing my test case for assessing whether consumer law provides a high level of consumer protection for UK RBCF backers. For my test case I explore the UK’s implementation and enforcement of the Unfair Commercial Practices Directive (‘UCPD’)6_{, which has been transposed into UK legislation}

through the Consumer Protection from Unfair Trading Regulations (‘CPUTRs’).7_{From Chapter}

4 onwards, I limit my analysis to RBCF transactions for the supply of a reward that is a tangible good or digital product (i.e. not a service), owing to the dominance of these offerings within RBCF at the present time.

Next, to understand the potential for creators to engage in misleading commercial practices (‘MCPs’) that are prohibited as unfair commercial practices (‘UCPs’) under the UCPD, as well as their prevalence in RBCF campaigns available to UK backers, I examine the terms of use (‘TOUs’) for Indiegogo and Kickstarter, the two largest RBCF platforms operating in the UK. I follow this analysis with an empirical survey of RBCF campaigns hosted on these two platforms (Chapter 5). In Chapter 6 I assess whether the UK’s implementation and enforcement of the UCPD via the CPUTRs provides a high level of consumer protection to campaign backers. This assessment is undertaken as a test case for determining whether EU consumer law implemented in the UK law offers a high level of protection to UK RBCF backers. Finally, I draw my conclusions (Chapter 7).

1.3 Methodology

I adopt a descriptive, doctrinal method from an internal perspective for establishing the history and function of RBCF in the EU internal market, for characterising RBCF parties’ relationships under English doctrinal contract law, and for my legal analysis of the application of the EU consumer acquis (including the UCPD) and the UK CPUTRs to the creator/backer relationship (Chapters 2, 3 and 4).8_{The advantage of this method is that it is well-suited to the discovery and}

6 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 84/250/EEC, Directives 97/7/EC, 98/7/EC (‘UCPD’)

7 Consumer Protection from Unfair Trading Regulations 2008 (SI 2008/1277) (‘CPUTRs’)

8 Due to devolution in the UK, this thesis analyses UK consumer legislation and English and Welsh doctrinal contract law (referred to as ‘English’ law). UK consumer statutes are enacted by Acts of the UK Parliament and apply throughout the UK’s four nations.

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development of legal doctrines, including the investigation of legal precedent and statutory interpretation.9_{It is particularly useful when attempting to identify and analyse the current legal}

position, such as characterising the parties’ relationships and determining whether and how EU consumer law applies to the creator-backer relationship in RBCF transactions.10

In Chapter 5, to empirically test the potential for creators to engage in MCPs in UK RBCF transactions, I review Kickstarter and Indiegogo’s TOUs before undertaking a survey combining qualitative and quantitative elements to collect and process data from individual RBCF campaigns. Further information about the methodological approach I adopt for these two elements of my research is provided in sections 5.2.1 and 5.3.1.

In Chapter 6 I use the UK’s implementation and enforcement of the UCPD through the CPUTRs as a test case for determining whether EU-derived UK consumer law provides a high level of protection to UK RBCF campaign backers. I have chosen this combination of jurisdiction and instrument as a test case for the following reasons: (i) the ready availability of good quality legal sources in English; (ii) the UCPD’s implementation into UK law required a significant overhaul of existing consumer rights legislation;11_{and (iii) in 2014 the UK introduced new private rights}

into the CPUTRs for consumers to seek redress where they have been harmed as a result of a trader’s UCPs.12_{Together, these factors create an interesting basis for assessing the level of}

protection afforded by EU-derived consumer law to UK RBCF Backers.

2. Setting the scene: evolution and functioning of RBCF in the EU internal

market and UK

2.1 RBCF history

RBCF is a form of crowdfunding. While there is no universally accepted definition of crowdfunding, broadly the term has come to be known as a type of fundraising effort to provide

9 Paul Chynoweth, ‘Legal Research’, in Andrew Knight (ed.) Advanced Research Methods in the Built Environment (Wiley-Blackwell, 2008) 28

10 Terry Hutchinson, ‘The Doctrinal Method: Incorporating Interdisciplinary Methods in Reforming the Law’ (2015) 4 ELR 130, 132

11 Colin Giles, ‘UK makes radical changes to implement Unfair Commercial Practices Directive’ (Bird&Bird, 28 April 2008) <https://www.twobirds.com/en/news/articles/2008/uk-changes-unfair-commercial-practices-directive> accessed 5 May 2018

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capital for new ventures by drawing on contributions from relatively large numbers of individuals over the internet (i.e. the ‘crowd’) without using standard financial intermediaries.13

In RBCF individuals contribute money towards a project on the basis of a pre-agreed expectation that they will receive a non-financial reward, usually goods, to be provided at an agreed later date (‘Reward’).14_{The basic premise is that by accruing small monetary contributions from a}

large number of individuals who are interested in supporting a business idea, entrepreneurs and start-ups can obtain sufficient meaningful capital to fund a project through to the commercial supply stage.15

Although RBCF first emerged in 2000, three factors explain its rapid uptake over the last decade. First, the 2007-2008 financial crisis led to a shortage of credit available for entrepreneurial use, especially by small or new business ventures.16_{Second, the rise of Web 2.0 in the mid-2000s}

transformed the Internet from a static network of information resources to a dynamic, interactive network of interconnected services. Web 2.0, which is characterised by a reliance on easily accessible user-generated content,17_{enabled the development of social networking sites and}

internet payments, which are necessary preconditions for the flourishing of RBCF.18_{Finally, the}

crowdsourcing phenomenon, where the crowd is engaged to work towards a common goal, gained increasing acceptance.19_{The intersection of these factors set the scene for the}

development of a large number of RBCF platforms and also enabled the proliferation of RBCF as a means for financing new business ventures.

2.2 RBCF key concepts

There are three parties to every RBCF transaction, referred to, together, as the RBCF Parties. The party who originates the RBCF campaign (‘Campaign’) is the ‘Creator’. This party may be

13 Ethan Mollick, ‘The Dynamics of Crowdfunding: An Exploratory Study’ (2014) 29(1) JBV 1, 6 14 European Commission, ‘Crowdfunding in the EU Capital Markets Union’ (Commission Staff Working

Document, 3 May 2016)

<https://ec.europa.eu/transparency/regdoc/rep/10102/2016/EN/10102-2016-154-EN-F1-1.PDF accessed 20 July 2018>para 3.1.

15 Rita Colistra & Kevin Duvall, ‘Show Me the Money: Importance of Crowdfunding Factors on Backers’ Decisions to Financially Support Kickstarter Campaigns’ (2017) 3(4) Social Media + Society 1, 3

16 Giancarlo Giudici, Ricardo Nava, Rossi Lamastra & Chiara Verecondo, ‘Crowdfunding: The New Frontier for Financing Entrepreneurship?’ (2012) 5 < https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2157429> accessed 18 May 2018

17 Ibid; Tim O’Reilly, ‘What is Web 2.0: Design Patterns and Business Models for the Next Generation of Software’ (2007) 65 Communications & Strategies 17,28

18 Jann Tosatto, Joe Cox & Thang Nguyen ‘An Overview of Crowdfunding in the Creative and Cultural Industries’ in Hans Landstrom (ed.) Handbook of Research Crowdfunding (Edward Elgar, forthcoming)

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either a natural or legal person.20_{The party who contributes funds to the Campaign is the}

‘Backer’ and is almost always an individual. Additionally, a publicly accessible online intermediary hosts the Campaign and connects Creators with Backers (‘Platform’). The Platform also facilitates the collection and distribution of funds paid by the Backer (‘Contribution’) to the Creator and may promote the Campaign with external media and by communicating with Platform users.

To launch a Campaign and receive Contributions, the Creator creates a page on their chosen Platform where they provide details of the Campaign, including any funding target (‘Target’) and details about the Rewards being offered (‘Campaign Page’). Often the Reward is the item whose production is being crowdfunded via the Campaign. It may be offered to Backers with added extras or at an ‘early bird’ price to encourage Contributions to be made.21_{Once the Campaign}

Page is finalised by the Creator, the Platform accepts the Campaign and opens it to the public for Contributions. When the Campaign is successfully funded, as described more fully in section 2.3 below, it ceases to be a Campaign and moves to the project stage (‘Project’) during which time the Reward is to be provided to the Backer.

Whilst still in the Campaign phase, Creators may ‘share’ the Campaign Page with their family, friends and other social network contacts (‘Contacts’) often via dedicated Platform tools, by publishing or sending a Campaign-specific link to the Platform’s Campaign Page (‘Link’). The Link may also display pictorial content and Reward pricing information and will appear in Contacts’ social media newsfeeds, for example on Facebook or Twitter.22_{Creators may also}

email the Link to their Contacts, display the Link on their personal website, or purchase social media advertisements e.g. on Facebook or Twitter, to promote their Campaign.

RBCF has been enabled through the existence and deepening of online social networks.23

Well-developed social networks, demonstrated by Creator’s number of Contacts, are an important predictor of Campaign success.24_{During the early stage of a Campaign, Contributions from}

20 Denis Frydrych, Adam Bock, Tony Kinder & Benjamin Koeck, ‘Exploring entrepreneurial legitimacy in reward-based crowdfunding’ (2014) 16(3) VCJ 247, 249

21 Michael Kunz, Ulrich Bretschneider, Max Erler & Jan Leimeister, ‘An Empirical Investigation of Signaling in Reward-Based Crowdfunding’ (2017) 17(3) Electronic Commerce Research 425, 431

22 For example: Indiegogo, ‘How to Share Your Campaign’ (Indiegogo)<https://support.indiegogo.com/hc/en-us/articles/527376-How-to-Share-Your-Campaign> accessed 5 June 2018

23 Frydrcych (n 20) 250 24 Mollick (n 13) 2

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Contacts represent a significant source of funding.25_{Many Platforms and popular RBCF media}

articles suggest that Creators send the Link to bloggers and prominent social media influencers to increase Contributions, and to enhance the Campaign’s quality signals.26_{Additionally, Platforms}

urge Creators to encourage Contributors to share the Link with their own Contacts, often in exchange for additional Rewards to be provided by the Creator.27

2.3 Money flows in RBCF

Platforms use one of two funding models to collect and distribute Contributions. Under the ‘All-Or-Nothing’ model the Creator sets their Target and receives Contributions only if the Target is met. If the Target is not satisfied the Creator receives nothing and the Contributions are returned in full to each Backer. Under the ‘Keep-It-All’ model, the Creator receives each Contribution when the Backer makes it, irrespective of whether the Campaign reaches any stated Target.28

Platforms may offer one or both models. Kickstarter allows only All-Or-Nothing funding,29

while Indiegogo permits Creators to choose between All-Or-Nothing and Keep-It-All funding prior to commencing their Campaign.30

Once an All-or-Nothing Campaign is successfully funded (and at the time each Keep-It-All Campaign Contribution is made) Contributions are passed onto Creators, minus the 5% commission taken by the Platform (‘Commission’) and applicable payment processing fees. Creators use Contributions in their own name and under their full and sole control. Indiegogo and Kickstarter do not impose any conditions on Creators’ use of Contributions; nor do they monitor Creators’ expenditure of Contributions or require Creators to account for their use of Contributions.

25 Ibid 8

26 For example: Sally Outlaw, ‘How to Spread the Word About Your Crowdfunding Campaign’(Entrepreneur

Europe, 6 November 2013)< https://www.entrepreneur.com/article/228544> accessed 29 May 2018

27 Indiegogo, ‘How to Participate in a Referral Contest’ (Kickstarter) < https://support.indiegogo.com/hc/en-us/articles/203660683-How-to-Participate-in-a-Referral-Contest> accessed 20 June 2018

28

Douglas Cumming, Gaël Leboeuf & Armin Schwienbacher, ‘Crowdfunding Models: Keep-It-All vs. All-Or-Nothing’ (2015) 3<https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2447567> accessed 3 June 2018

29 Kickstarter, ‘Why is Funding All-Or-Nothing?’ (Kickstarter) <https://help.kickstarter.com/hc/en-us/articles/115005047893-Why-is-funding-all-or-nothing-> accessed 21 July 2018

30 Indiegogo, ‘Choose Your Funding Type: Can I Keep My Money?’ (Indiegogo)

<https://support.indiegogo.com/hc/en-us/articles/205138007-Choose-Your-Funding-Type-Can-I-Keep-My-Money-> accessed 18 July 2018

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2.4 RBCF in the EU and UK

Despite the presence more than 152 Platforms operating in the EU, RBCF use remains small, accounting for only 6.4% of the total EU alternative finance market.31_{Most EU Platforms are}

nationally-specific or relate to a particular sector or interest.32

UK RBCF is of moderate popularity, being offered by approximately 20% of Platforms operating in the country.33_{In transaction volume terms, the two biggest Platforms available to}

UK Backers operate out of the United States. Kickstarter, whose worldwide Contributions total US$3.8 billion across 145,243 successfully-funded Campaigns hosted since 200834_{is the world’s}

most popular Platform. Indiegogo, which has raised approximately US$1.3 billion globally over approximately the same time period occupies second place.35_{In addition to Kickstarter and}

Indiegogo, more than 65 smaller based Platforms operate, with most accepting only UK-based Campaigns.36

3. Relationships between RBCF Parties and RBCF Parties’ status

according to English doctrinal contract law

Three separate, but interdependent interactions arise between the RBCF Parties in the course of each RBCF transaction. The following analysis considers each of these dealings as they occur between the various RBCF Parties on the Indiegogo and Kickstarter Platforms (together, the ‘Survey Platforms’) from the perspective of English doctrinal contract law and on the basis of

31Tania Ziegler, Rotem Shneor & Kieran Garvey, ‘Expanding Horizons: The 3rd_{European Alternative Finance}

Industry Report, Cambridge Centre for Alternative Finance’ (Cambridge Centre for Alternative Finance, 2018) <https://www.jbs.cam.ac.uk/fileadmin/user_upload/research/centres/alternative-finance/downloads/2018-ccaf-exp-horizons.pdf> accessed 22 May 2018, 31

32 Ibid 7

33 Jonathan Bone & Peter Baeck, ‘The Current Shape of Crowdfunding Platforms in the UK’ (Nesta, 15 December 2017) <https://www.nesta.org.uk/blog/the-current-shape-of-crowdfunding-platforms-in-the-uk-1/> accessed 1 July 2018

34 Kickstarter (n 4)

35 Dean Takahashi, ‘Indiegogo moves beyond crowdfunding to help start-ups with manufacturing’ (VB, 15 January 2018)

<https://venturebeat.com/2018/01/15/indiegogo-moves-beyond-crowdfunding-to-help-startups-with-manufacturing/> accessed 4 March 2018 36 Bone (n 33)

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the current Indiegogo TOUs37_{and the current Kickstarter TOUs.}38_{The key provisions of the}

TOUs referred to in the below analysis are set out in Appendix 1.

3.1 Relationship between Creator and Backer

For both Survey Platforms, the relationship that arises between the Creator and Backer is a contract to provide the Reward. Kickstarter’s TOUs state that a contract is created between the Creator and Backer when the Backer makes a Contribution.39_{The Kickstarter TOUs provide that}

when a Creator creates a Campaign Page they ‘invite’ Backers to enter into a contract with them, with the resulting contract formed whenever a Backer accepts the Creator’s offer.40_{Indiegogo’s}

TOUs are silent on the contract formation point, although they do state that Creators are legally bound to ‘perform on any promise and/or commitment to Contributors (including delivering any perks)’.41

On the basis of the above provisions, it is clear that under English doctrinal law the Creator and Backer intend to enter into a contract for the supply of a Reward in exchange for a specific Contribution. The contract is formed at the time the Contribution is accepted by the Creator, with the Backer’s payment of the Contribution constituting an offer, being a statement made by the Backer of their willingness to enter into the contract on agreed terms.42_{Consideration, which is a}

requirement for an enforceable contract to exist under English doctrinal contract law, flows from the Backer to the Creator in the form of the Contribution, and from the Creator to the Backer in the form of the promise to deliver the Reward. Thus, the requirement of consideration is satisfied by the Backer providing ‘sufficient’ (i.e. valuable) Contribution in return for the Creator’s promise to supply the Reward.43

The relationship between the Creator and Backer is governed by the relevant TOUs, which function as a master framework agreement between each Creator and each Backer for all Campaigns hosted on the Survey Platform. These general terms are supplemented by terms

37 Indiegogo, ‘Terms of Use’ (Indiegogo, 25 May 2018) <https://www.indiegogo.com/about/terms> accessed 20 July 2018

38 Kickstarter, ‘Terms of Use’ (Kickstarter, 25 May 2018) <https://www.kickstarter.com/terms-of-use> accessed 20 July 2018

39 Ibid, section 4 40 Ibid

41 Indiegogo (n 37) section 4

42 Ewan McKendrick, Contract Law (11th edition, Palgrave, 2015) 26 43 McKendrick (n 42), 69

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implied into the contract by English statute, custom or common law, as necessary.44_{Additionally,}

the TOUs’ general terms are modified by Campaign-specific terms, representations and warranties which the Creator sets out on the Campaign page. Again, these terms are supplemented, where required, by implied terms.45_{To the extent EU consumer law is found to}

apply to the Creator-Backer relationship in relation to the offering of a Reward (as is discussed in section 4.4.2 below) statutorily implied consumer protection terms will be implied into the contract by the Consumer Rights Act (‘CRA’)46_{if necessary.}47

If there is a conflict between the TOUs and the Campaign-specific terms, English law principles of interpretation require the court to consider the contract documents as a whole and to attempt to read them sensibly and in harmony with each other on the assumption the parties intended to express their intentions consistently and coherently.48_{Furthermore, the court will most likely}

attach greater weight to words written by the parties, rather than to standard contract wording, as such written words will have been chosen by the parties themselves. Thus, it is likely that where there are inconsistencies between the Platform TOUs and Campaign-specific terms, the Campaign-specific terms will prevail to the extent of the inconsistency if they cannot be reconciled with the TOUs.

3.2 Relationship between Creator and Platform

A relationship arises between the Creator and Platform when the Campaign is accepted for hosting by the Platform. Kickstarter’s TOUs are vague as to the nature of the arrangement between it and a Creator, never explicitly stating that there is a contractual relationship between the parties. By contrast, Indiegogo’s TOUs state that a ‘legal agreement’ exists between itself and a Creator, although the TOUs do not disclose the purpose of that agreement.49

Despite these ambiguities, under English doctrinal contract law a contract for hosting the Campaign, distributing Contributions, and for payment of Commission clearly arises between the Platform and the Creator. The Creator makes an offer to the Platform when the Creator creates a Campaign, which the Platform accepts and hosts on the basis of the terms set out in the relevant

44 Ibid 168 45 Ibid

46 Consumer Rights Act 2015 (‘CRA’) sections 9-16 47 McKendrick (n 42) 168

48 RWE Npower Renewables v JN Bentley [2014] EWCA Civ 150 (Lord Justice Moore-Bick) 12, 16 49 Indiegogo (n 37) section 3

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TOUs, which are agreed between the parties. Valuable consideration is provided through the Creator’s agreement to pay the Commission to the Platform and the Platform agreeing to collect Contributions. While there may be a lack of clarity regarding some specific terms, overall there is little doubt that sufficient legal certainty exists for English courts to find an enforceable contract.50_{In the same way as for the Creator-Backer relationship, further terms may be implied}

into the Creator-Platform contract where required.

3.3 Relationship between Platform and Backer

The characterisation of the intercourse between the Platform and Backer under English law is more problematic. The Survey Platforms’ TOUs are silent as to the existence of a relationship between the Platform and Backer beyond the creation of a user account. The TOUs explicitly state that a contractual relationship arises between the Creator and the Backer in relation to the Contribution and the agreement to provide Rewards, and that the relevant Platform is not part of that contract.51_{Nonetheless, both Kickstarter and Indiegogo prescribe the terms that apply to the}

Creator-Backer contract in the TOUs.

Notably, each of the Survey Platform do not promise the Backer that they will do anything in relation to the supply of the Reward (other than to pass Contributions to the Creator), giving rise to doubts about the existence of valuable consideration in respect of this transaction. To the extent the Platform holds Contributions on behalf of Backers (i.e. before they are distributed to a Creator) an implied trust may be created. However, once the Creator satisfies any conditions for receiving Contributions (i.e. they meet the fundraising target for an All-Or-Nothing Campaign, or the Contribution is accepted, for a Keep-It-All Campaign) it is unlikely that the relevant Platform will have any contractual liability to the Backer, regarding their Contribution. Thus, based on English doctrinal contract law, the relationship between the Platform and Backer appears to exclude any matters concerning the fulfilment of Rewards, as this subject is expressly covered in the contract between the Backer and Creator, who has accepted sole responsibility for fulfilment.

50 McKendrick (n 42) 45

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3.4 Contractual relationships between RBCF Parties under English doctrinal contract law

My analysis finds the existence of two enforceable contracts among the RBCF Parties. There is a contract for the supply of a Reward between the Creator and Backer and a contract for hosting a Campaign and collecting Contributions between the Creator and Platform. It is questionable whether a contract exists between the Platform and Backer, but, any such contract would clearly not cover the provision of Rewards. For the remainder of this thesis, the Creator-Backer relationship will be considered, as this is a contractual relationship that clearly concerns the supply of Rewards in exchange for Contributions, and to which the application of EU and UK consumer law may be readily assessed.

Chapter 4 - Applying EU and UK consumer law to the Creator-Backer

relationship

4.1 The debate around applicability of EU consumer law to RBCF

Very recently, the possibility of Backers benefiting from the protection of EU consumer laws vis-à-vis Creators has gained traction among academic writers. Armour & Enriques argue that Backers receive ‘advance units of product’ through transactions similar to product pre-purchasing and that UK RBCF is ‘probably’ subject to EU-derived consumer laws.52_Gutiérrez

& Sáez ‘expect’ EU-derived consumer laws would be enforced to protect Backers if Backers or regulatory agencies sought to enforce EU consumer rights.53

The academic debate around the applicability of EU consumer law to RBCF is in its infancy and the qualified statements made by the debate’s recent participants reflect key uncertainties concerning the scope of EU consumer law, the roles played by RBCF Parties and the core function of RBCF in the EU economy. Nonetheless, academic acknowledgement of the possible application of EU consumer law suggests a shift in the RBCF narrative from its early, narrow focus on entrepreneurship.

52 John Armour & Luca Enriques, ‘The Promise and Perils of Crowdfunding: Between Corporate Finance and Consumer Contracts’ (2017) ECGI – Law Working Paper No. 366/2017, 18

<https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3035247> accessed 10 January 2018

53 María Gutiérrez Urtiaga & Maria Isabel Sáez Lacave, ‘The Promise of Reward Crowdfunding’ (2018) ECGI - Finance Working Paper No. 542/2017, 39 <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3096753> accessed 2 June 2018

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4.2 Applicability of EU consumer law to RBCF – EU approach

Although no EU consumer law instrument explicitly addresses RBCF, various official EU statements have suggested that RBCF falls within the ambit of EU consumer law. The European Parliament expressly claims that RBCF is ‘comparable to pre-selling’.54_{Additionally, the}

assumption that Backers are consumers was emphasised in a recent European Commission publication which remarked that RBCF is ‘particularly suitable for products and services that either are innovative or garner high levels of consumer attention’.55

In a more direct confirmation of applicability, Vice-President Dombrovskis stated that ‘traders directing RBCF projects to consumers’ must comply with the ‘horizontal consumer legislation’, particularly the UCPD.56_{The European Commission excluded RBCF from the scope of its recent}

Crowdfunding Regulation Proposal.57_{The Commission claimed that subjecting RBCF to the}

proposed regulatory requirements would be disproportionate as RBCF does not deal with financial products and does not create information asymmetries of the type financial products create.58_{Moreover, in the same document the European Commission expressly confirmed that}

EU consumer law already applies to RBCF with ‘strict rules to safeguard consumers’.59

Despite these ad hoc claims that EU consumer law applies to RBCF, no clear statement about exactly how EU consumer law impacts the RBCF Parties has been issued. Moreover, no EU policy instrument discusses the parameters of EU consumer law’s application to RBCF or the EU’s monitoring and enforcement objectives or priorities for RBCF.

54 Angelos Delivorias, ‘Crowdfunding in Europe: Introduction and State of Play’ European Parliament Briefing, (EPRS, January 2017)

<http://www.europarl.europa.eu/RegData/etudes/BRIE/2017/595882/EPRS_BRI(2017)595882_EN.pdf> accessed 2 May 2018

55 European Commission, ‘Rewards-based crowdfunding’ Guide on Crowdfunding’ (ICAEW, 2018) <https://ec.europa.eu/growth/tools-databases/crowdfunding-guide/types/rewards_en> accessed 2 July 2018 56 European Parliament, ‘Answer given by Vice-President Dombrovskis on Behalf of the Commission’ (European

Parliament, 24 May 2017)

<http://www.europarl.europa.eu/sides/getAllAnswers.do?reference=E-2017-001464&language=EN> accessed 2 July 2018

57 European Commission, ‘Proposal for a Regulation of the European Parliament and of the Council on European Crowdfunding Service Providers for Business’ COM(2018)113 final < https://ec.europa.eu/info/law/better-regulation/initiatives/com-2018-113_en > accessed 21 June 2018

58 Ibid 2 59 Ibid

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4.3 Applicability of EU consumer law to RBCF – UK regulatory agencies’ approach

UK regulatory agencies have made fewer assertions that RBCF is subject to EU-derived consumer law. The Financial Conduct Authority (‘FCA’) has been the most forthright, labelling RBCF as ‘pre-payment crowdfunding’ and describing it as ‘where people contribute money in return for a reward, service, or product such as concert tickets, an innovative product or a computer game’.60_{Yet these statements fall short of confirming RBCF is covered by consumer}

law, with the FCA merely stating that it does not regulate RBCF itself.61

The Competition & Markets Authority (‘CMA’), the successor to the Office of Fair Trading (‘OFT’) and the UK’s official consumer regulatory body, has no publications referencing RBCF.62_{Nor has it issued any trader guidelines, nor undertaken enforcement action relating to}

RBCF.63_{Similarly, the OFT archive contains no references to RBCF, either in policy or}

enforcement terms.64

4.4 Testing the applicability of EU consumer law to the Creator-Backer relationship

4.4.1 Trader-consumer relationship?

It is necessary to test the validity of the above claims that RBCF is subject to EU consumer law, including by defining in more express terms the parties or relationships to which EU consumer laws apply, and by examining the definitions of ‘consumer’ and ‘trader’ more closely.

Generally, EU consumer law applies where there is a trader-consumer relationship. The various EU consumer laws do not adopt an identically drafted ‘consumer’ definition, and divergences exist between Member State interpretations.65_{Nonetheless, for the purposes of most EU}

60 FCA, ‘Crowdfunding and Authorisation’(FCA, 2 February 2018)

<https://www.fca.org.uk/firms/authorisation/when-required/crowdfunding> accessed 9 May 2018

61 FCA, ‘A review of the regulatory regime for crowdfunding and the promotion of non-readily realisable securities by other media’ (FCA, February 2015) 1 < https://www.fca.org.uk/publication/thematic-reviews/crowdfunding-review.pdf> accessed 9 May 2018

62 Based on my review of the CMA website. See: CMA, ‘Competition and Markets Authority’ (GOV.UK, 2018) < https://www.gov.uk/government/organisations/competition-and-markets-authority> accessed 20 July 2018

63 Ibid

64 Based on my review of the OFT website archive. See: The National Archives, ‘Office of Fair Trading’ (OFT, 2 April 2014) < http://webarchive.nationalarchives.gov.uk/20140402142426/http://www.oft.gov.uk/> accessed 20 July 2018

65 Jana Valant, ‘Consumer protection in the EU: Policy overview – In-Depth Analysis 5 (EPRS, 2015)

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consumer law measures, a ‘consumer’ is defined in negative terms as ‘a natural person… acting outside the scope of economic activity (i.e. outside their trade, business, profession or craft).66

For the UK, the CRA (and most other consumer legislation) defines ‘consumer’ slightly more widely than under EU consumer law as ‘an individual acting for purposes which are wholly or mainly outside that individual’s trade, business, craft or profession’.67_{Thus an individual who}

occasionally uses a product for business purposes is covered by UK consumer legislation.

The term ‘trader’ (sometimes called a ‘seller’ or ‘supplier’) in EU consumer law generally refers to ‘any person acting for the purposes relating to his trade, business, craft or profession’.68_The

EU consumer law definition of ‘trader’ has been adopted in substantively similar terms in the CRA and other UK consumer legislation.

In its 2016 European Agenda for the Collaborative Economy (‘Collaborative Economy Agenda’), the European Commission stated that, in principle, EU consumer law applies to providers of underlying goods on online platforms if they act in relation to their trade, business, craft or profession.69_{The Collaborative Economy Agenda sets out factors that will be important,}

but not determinative, in considering whether a provider of goods via a collaborative platform is likely to be a ‘trader’ in the context of the UCPD. The frequency of service provision (‘marginal and accessory’ versus ‘regularly’), the presence of a profit seeking motive, and the level of turnover are all indicative.70_{Notwithstanding the usefulness of these factors, the Collaborative}

Economy Agenda emphasises that it is necessary to take into account all the circumstances of any particular case in considering whether a provider of goods is a trader.71

The recent opinion of Advocate-General Szpunar in case C-105/17 (‘Kamenova)’, which is currently awaiting judgment by the Court of Justice of the European Union (‘CJEU’), may

1 June 2018

66 Rafal Manko, ‘The notion of ‘consumer in EU law’ 1 (European Parliament Library, 6 May 2013) <

http://www.europarl.europa.eu/RegData/bibliotheque/briefing/2013/130477/LDM_BRI(2013)130477_REV1_EN.pd f> accessed 2 July 2018

67 CRA section 2(3) 68 Valant (n 65) 5

69 European Commission, ‘Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: A European Agenda for the Collaborative Economy’ 2.3 (European Commission, 2 June

2016)<https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52016DC0356&from=EN> accessed 15 July 2018 70 Ibid

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further clarify when a Creator will be a trader under EU consumer law.72_{With reference to the}

UCPD and the Consumer Rights Directive (‘CRD’)73_{, the Advocate-General listed several}

additional indicators for determining whether an online seller is a trader including whether: (i) the sale was part of an organised venture with a profit-seeking motive; (ii) the sale followed a particular timeline; (iii) the seller’s legal status permitted trading activity and the connection between that status and the activity; (iv) the seller was registered for VAT; (v) the seller purchased new or used goods to re-sell; and (vi) the similarity of type and value of items offered.74

Although the CJEU has not yet published its judgment in Kamenova, these factors increase the likelihood that a Creator will be a trader under EU consumer law. In particular, relating to (i) the profit-seeking motive in RBCF, which is apparent in any Campaign, other than Campaigns for charitable purposes, is very strong. This is especially so given the contractually-agreed promise to provide a Reward, particularly where the main promised Reward is, or includes, the item that is being crowdfunded. Addressing (v) and (vi), although the facts of Kamenova relate to re-selling items online, it is difficult to see how manufacturing or producing substantively similar items could be seen as less of a trading activity than re-selling new or used goods. Finally, regarding (iv) and with particular reference to the UK, HRMC (the UK government taxation agency) has issued VAT requirements for RBCF. HMRC regards Contributions made in exchange for Rewards that are goods with an ‘intrinsic value’ (e.g. clothing or DVDs) as constituting a supply for VAT purposes.75

Given the weaker party protection orientation of EU consumer law, which was reaffirmed in Attorney-General Szpunar’s opinion,76_{the organised and profit-seeking character of Campaigns}

72 Case C-105/17 Commission for Consumer Protection v Evelina Kamenova [Case in Progress] ECLI:EU:C:2018:378, Opinion of AG Szpunar

73 Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights amending Council Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and of the Council and repealing Council Directive 85/577/EEC and Directive 97/7/EC of the European Parliament and of the Council (‘CRD’)

74Agnieska Jablonowska, ‘When Does an Online Seller Become “a Trader”? AG Szpunar in Kamenova’ (Recent

Developments in European Consumer Law, 2 June 2018)

<http://recent-ecl.blogspot.com/2018/06/when-does-online-seller-become-trader.html> accessed 7 July 2018

75 HMRC, ‘Management of Investments, Portfolios, Funds, ‘Wrapper Products’ and Related Services: Crowdfunding’ HMRC VAT Finance Manual (GOV.UK, 8 April 2016) < https://www.gov.uk/hmrc-internal-manuals/vat-finance-manual/vatfin5550> accessed 15 July 2018

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and their VAT status weigh heavily. While acknowledging the circumstances of each case must be assessed individually, I conclude in general terms that there is no legal barrier to a Creator who contracts with a Backer for supply or sale of Rewards on a Platform being regarded as a trader for EU consumer law purposes. This finding is likely to find ready acceptance among EU and UK regulatory agencies given both the existing presumption among several of them that EU consumer law applies to RBCF and the strong weaker party focus of EU consumer law.

4.4.2 A sales contract for the supply of goods?

Having concluded that the Creator-Backer relationship is, in principle, a trader-consumer relationship, it is necessary to establish that the contract for the supply of a Reward is a sales contract, in order for the bulk of EU-derived UK consumer law to apply. Section 5(1) of the CRA, which implements the CRD into UK law states that a contract is a sales contract if the trader transfers or agrees to transfer ownership of the goods to the consumer and the consumer pays or agrees to pay the price. In both the CRA and the CRD ‘price’ ‘solely relates’ to ‘payment in money.’77_{In RBCF, the Backer makes a Contribution which is paid in money and the Creator}

is required to provide the Reward to the Backer, with ownership of the Reward transferring from the Creator to the Backer, thus satisfying this requirement.

Turning to the notion of ‘goods’ and whether Rewards in RBCF may be regarded as ‘goods’ for the purposes of the CRA, it is necessary to consider the definition used in the CRD, which is implemented by Part 1 of the CRA. Under both the CRD and CRA and the CRA’s associated Consumer Contracts Regulations (CCRs),78_{‘goods’ are ‘any tangible moveable items’.}79

Moreover, the CRA confirms, in line with the Consumer Sales Directive80_{that ‘goods that are to}

be manufactured or produced’ may be the subject of a supply of goods contract, provided that the consumer is to pay a price for the goods and will take ownership of them.81_{Thus, a Reward}

qualifies as ‘goods’ under EU and UK consumer law, and the fact that the Reward often does not

77 European Commission, ‘DG Justice Guidance Document concerning Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights, amending Council Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and of the Council and repealing Council Directive 85/577/EEC and Directive 97/7/EC of the European Parliament and of the Council’ 2.3 (European Commission, June 2014) <https://ec.europa.eu/info/sites/info/files/crd_guidance_en_0.pdf> accessed 28 June 2018

78 Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (SI 2013/3134) (‘CCRs’)

79 This definition is derived from Article 2(3) CRD and section 2(8) CRA

80 Directive 1999/44/EC of the European Parliament and of the Council of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees (‘CSD’)

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exist at the time the contract for its supply is entered into does not lead to the dis-application of these laws. From this analysis it is concluded that a contract for the supply of a Reward entered into between a Creator and a Backer on a Platform is, in principle, a sales contract for the purposes of EU and UK consumer law and possibly constitutes a pre-order.

4.4.3 Key consumer rights for Backers

Typically in RBCF, the goods constituting the Reward contracted for supply to a Backer are yet to be manufactured at the time the contract is agreed. There is one exception to the protections afforded to UK consumers under the CRA and CCRs concerning goods that are made to the consumer’s specifications or clearly personalised. This derogation is the loss of the 14 day right to cancel otherwise applicable for non-bespoke (i.e. so-called ‘standard’) goods.82_{The position}

reflects the exceptions from the right of withdrawal contained in the CRD.83_{Notably, it would}

appear that the exclusion of the right of cancellation would not apply simply where the goods were yet to be manufactured, provided that they were being made to the Creator’s, and not to the Backer’s, specifications and were not being personalised for the Backer in any way. In any case, for completeness, the following analysis is undertaken with respect to both bespoke and standard goods.

All other rights afforded in respect of standard goods apply equally to bespoke goods, including to both physical and digital Rewards. These rights reflect the consumer rights afforded under the CRD and CSD. Statutory rights that apply to Rewards, whether they are bespoke or standard goods, include the implication of a term into the sale contract that the Reward: (i) is of satisfactory quality,84_{(ii) is fit for the purpose for which it was supplied}85_{(including any purpose}

made known to the Creator);86_{and (iii) matches the description made available to the Backer and}

any models or samples shown (including prototypes) at the time the sale contract was entered into.87_{These rights are enforceable by the Backer vis-à-vis the Creator (who is the trader for the}

purposes of the CRA).

82 CCRs regulation 28(1)(b) 83 CRD article 16(c) 84 CRA section 9(1)&34(1) 85 Ibid 9(3)&34(3(a)) 86 Ibid 10&35(1) 87 Ibid 11,13&14&36

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If the Reward received by the Backer does not conform to the above statutory rights (i.e. is of unsatisfactory quality, is not fit for purpose or is not as described by the Creator), the Backer is entitled have the Reward brought into conformity with the contract.88_{For tangible goods, within}

30 days of taking ownership and delivery of the Reward, the Backer may reject the Reward by indicating this to the Creator if the Reward is, or becomes, non-conforming.89_{If the Backer does}

this the Backer will be entitled to receive a full refund.90

To the extent the Reward is a digital Reward (e.g. a computer game that is not on a DVD) the Backer does not automatically have a right to receive a refund during this 30-day window. Instead, for digital Rewards, the Backer must request that the Creator repair the non-conforming Reward in the first instance.91_{Only if the digital Reward cannot be brought into conformity, or if}

the Creator does not bring it into conformity, may the Backer request a reduction in the Reward’s price.92

Upon expiry of the 30-day right-to-reject window, the Backer may request that the Creator bring non-conforming tangible Rewards into conformity (i.e. repaired), or that the Reward be replaced.93_{The Backer may request either of these options, but the Creator will not be required to}

follow the Backer’s preferred alternative if to do so would be disproportionately costly.94_Finally,

if the Reward is not able to be brought into conformity, the Backer is entitled to a price reduction (if the Backer wishes to keep the Reward) or has a final right to reject the goods.95

Further, the CRA also implies a default delivery term into sales contracts for the purchase of goods.96_{Under such contracts, unless there is an agreed time by which the Creator must provide}

the Reward, the Creator is required to deliver the Reward without delay and, in any event, no later than 30 days after the contract is entered into.97_{If the Creator fails to deliver the goods the}

Backer may specify a further period for delivery, after which, if the Reward is not delivered, the

88 Ibid section 19(1)&42(1) 89 Ibid sections 20(6) 90 Ibid section 20(10) 91 Ibid section 43 92 Ibid section 44 93 Ibid sections 23&19(3) 94 Ibid section 23 95 CRA section 24 96 Ibid section 28(1) 97 Ibid section 28(3)

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Backer may treat the contract as though it has ended. If this happens the Creator must refund the Backer in full.98

Part 2 of the CRA implements the Unfair Contract Terms Directive.99_{Relevantly, the CRA}

requires all written terms of a consumer contract to be transparent,100_{meaning that they are}

legible and in plain and intelligible language. Further, the CMA states that to ensure terms are fully intelligible they must be organised with clarity.101_{In particular, sentences should be short}

and easily understood headings should be used.102_{For terms presented online, an appropriately}

sized font and text colour should be used.103

4.5 European consumer law test case: The UCPD in UK consumer law 4.5.1 Introduction to the UCPD

The UCPD prohibits commercial practices (‘CP’) which: (i) are contrary to traders’ professional diligence requirements; and (ii) materially distort the economic behaviour of the average consumer or average member of a consumer group to whom the CP is directed (‘General Prohibition’).104_{The ‘average consumer’ is set as an objective standard based on the idea of a}

consumer who is ‘reasonably well-informed and reasonably observant and circumspect’.105

Importantly, an individual consumer’s subjective decision-making is irrelevant. Besides the General Prohibition, the UCPD prohibits misleading actions, misleading omissions and aggressive CPs.

Misleading actions are CPs that contain false information and which are therefore untruthful, deceptive (or likely to be deceptive), and which cause or are likely to cause the average consumer to take a transactional decision they would otherwise not have taken.106_{A list of items}

in relation to which misleading actions may occur is set out in Article 6, and includes, relevantly

98 Ibid sections 28(5),(7), (8)&(9)

99 Ibid section 68(1); Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts 100 Ibid section 64(3)

101 CMA, ‘Unfair contract terms guidance – Guidance on the unfair terms provisions in the Consumer Rights Act 2015’ 2.5.2 (CMA, 31 July 2015)

<https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/450440/Unfair_ Terms_Main_Guidance.pdf> accessed 28 June 2018

102 Ibid

103 CMA (n 101) 2.53 104 UCPD article 5(1) 105 UCPD recital 18 106 Ibid article 6(1)

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to RBCF, information concerning the existence or nature of the product,107_{and information about}

the consumer’s rights such as the right to replacement or reimbursement, or risks the consumer may face.108

Misleading omissions are CPs that in their factual context omit material information the average consumer needs to take an informed transactional decision, and therefore cause or are likely to cause the average consumer to take a transactional decision they would not have otherwise taken.109_{Specifically, a CP is a misleading omission under the CPRs if it omits or hides material}

information or provides material information in a manner that is unclear, unintelligible, ambiguous, or untimely and, as a result, causes or is likely to cause the average consumer to take a transactional decision he would not have taken otherwise.110

Misleading acts and omissions under the UCPD appear particularly relevant to the types of consumer issues that might arise in the information-rich Platform environment, given the reliance on Creator-generated content. Specifically for RBCF, the Backer’s decision to Contribute is likely to be based heavily on the Creator’s representations relating to delivery and conformity, which will be made online and not in-person. Thus, misleading acts and omissions under UCPD Articles 6 and 7 (together, ‘MCPs’, as mentioned in section 1.2) are likely to be relevant to RBCF and will form the basis of my analysis of the UCPD in UK law for my test case. Aggressive CPs are unlikely to occur in the context of RBCF and are thus excluded from my test case analysis.

Finally, although it is beyond the scope of this thesis to consider the application of EU consumer law to the Platform-Backer relationship in any detail, I note that the Commission has held that a Platform may also be regarded as a trader under the UCPD for purposes related to its business where it charges a commission on transactions, provides additional paid services or draws revenues from targeted advertising. As Kickstarter and Indiegogo charge Commission on Contributions and offer paid services through consulting and Campaign development workshops, they are likely to be traders under the UCPD in relation to their business activities. Consequently, it is probable that Kickstarter and Indiegogo must comply with non-contractual

107 Ibid article 6(1)(a) 108 Ibid article (1)(g) 109 Ibid article 7(1) 110 Ibid article 7(2)

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elements of the UCPD and the CPUTRs e.g. by not misrepresenting the application of EU consumer law rights to the Creator-Backer contract.

4.5.2 UCPD in UK legislation: remedies and enforcement

The UCPD has been implemented in UK law through the CPUTRs. The CPUTRs mirror the drafting of the UCPD in all material respects.111_{Nonetheless, the CPUTRs contain remedies not}

set out in the UCPD because remedies are left to Member States.112

The range of remedies available under the CPUTRs to UK consumers has been substantially enlarged by the enactment of the Consumer Protection (Amendment) Regulations 2014 (‘CPARs’) which add a new class of civil remedies to the CPUTRs’ existing public enforcement provisions. When the CPUTRs were implemented in the UK, many prior consumer protection measures were repealed, with no corresponding direct enforcement consumer enforcement remedies inserted into the CPUTRs. Consequently, a consumer who wished to seek redress was required to bring a private law action against the trader on the basis of misrepresentation, undue influence, duress, breach of contract or non-conformity.113

The new measures apply upon satisfaction by the consumer of the conditions set out in Regulation 27A: (i) the consumer enters into a contract for the sale or supply of a product by the trader; (ii) the trader engages in a prohibited practice relating to the product; and (iii) the prohibited practice is a significant factor in the consumer’s decision to enter into the contract, which the consumer must show.114_{If all these requirements are met, the consumer may invoke}

their right to redress.

Redress remedies apply to a limited class of UCPs. A ‘prohibited practice’ for the purposes of Regulation 27A is a misleading action under Regulation 5, CPUTRs or an aggressive CP.115

Notably, the General Prohibition and misleading omissions under Regulation 6, CPUTRs are excluded from the private redress provisions’ scope.116_{Thus, for misleading omissions, public}

111 Directorate General for Internal Policies, ‘State of Play of the Implementation of the Provisions on Advertising in the Unfair Commercial Practices Legislation’ 7 (European Parliament, 2010)

<http://www.europarl.europa.eu/document/activities/cont/201007/20100713ATT78792/20100713ATT78792EN.pdf > accessed 22 June 2018

112 UCPD Article 11(1)

113 Simon Whittaker, ‘Distinctive Features of the New Consumer Contract Law’ (2017) 133(1) LQR 61 114 CPARs Explanatory Note 12

115 Ibid, regulation 27B 116 Whittaker (n 113) 54

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enforcement under the offence provisions remains the only option, other than an action for misrepresentation, undue influence, duress or breach of contract.117

The private remedies include a consumer’s right to unwind a contract, right to a discount, and right to damages.118_{The right to unwind a contract with a trader allows the consumer to reject the}

product within 90 days of either entering into the contract, or of the goods being delivered (whichever occurs later).119_{Exercising the right to unwind results in contract termination,}

releasing both the consumer and the trader from their obligations. The contract ends once the trader has refunded the consumer, and the consumer has made the goods available for collection by the trader.120

The right to a discount allows the consumer to seek a reduction in respect of payments under a contract.121_{For contracts worth £5,000 or less, the Regulations permits consumers to obtain a}

25%, 50%, 75% or 100% discount on payments, depending on whether the trader's breach is considered to be minor, significant, serious or very serious.122_{The degree of seriousness of the}

trader's actions will depend on their behaviour, its impact on the consumer, and length of time since the consumer entered the contract.123_{This remedy is not limited to the 90 day restriction.}

Finally, if a consumer incurs a financial loss that they would not have suffered were it not for the for the trader's misleading action, they may make a claim for damages either alone or in conjunction with a discount or contract unwinding.124_{The consumer may also claim if they have}

suffered alarm, distress or physical inconvenience or discomfort as a result of the trader's actions.125

Part 3 of the CPUTRs sets out the public enforcement offence provisions with respect to UCPs. All Part 3 offences may be enforced only by the CMA by seeking an enforcement order under the Enterprise Act which empowers the CMA to enforce consumer protection breaches.126_MCPs

117 CPUTRs Part 3

118 CPARs regulations 27F, 27I & 27J 119 Ibid regulation 27E

120 Ibid regulation 27F 121 Ibid regulation 27I, 122 Ibid regulation 27I(4) 123 CPARs regulation 27(5) 124 Ibid regulation 27J(1) 125 Ibid

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are strict liability offences, though subject to the following defences: due diligence; innocent publication of advertisements; and publication of commercial practices that are not advertisements.

In addition to CPUTRs remedies, a UK consumer who has suffered loss due to a trader’s contractual breach may commence a claim against an EU trader through the civil division of the English County court system. This step may be taken, irrespective of where the trader is based, provided the trader directs their commercial activities towards the UK and the contract is within the scope of those commercial activities.127_{It would seem likely that a Creator who makes}

Rewards available to a UK Backer (by positively indicating on the Campaign Page that Rewards may be sent to a UK Backer on the Platform) would be viewed as directing their commercial activities towards the UK, provided they qualify as a trader under the CPUTRs.

Finally, under the EU framework established by the Consumer Protection Cooperation Network, the CMA may request that its counterpart in the trader’s home country take action against the trader by ordering that they cease breaching relevant laws or by issuing a fine.128_{However, for}

RBCF if the Creator is outside the EU, a Backer must either bring an action in the Creator’s jurisdiction (thus no longer benefiting from EU consumer law) or seek to enforce a judgment entered by an EU Member State Court in the Creator’s jurisdiction.

5. Survey – Platform TOUs and Campaign Pages

5.1 Introduction

This chapter presents the results of my review of TOUs and Campaign Pages to determine whether, and the extent to which, Creators engage in MCPs. I have chosen these documents because: (i) taken together, they comprise the majority of information provided to Backers; and (ii) TOUs and Campaign pages contain the substantive terms of the Creator-Backer contract (excluding implied terms).

127 Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast), Articles 17(c) & 18

128 European Commission, ‘Consumer Protection Cooperation Network Single Market Scoreboard’ (European

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5.2 Survey of Platform TOUs 5.2.1 Methodology

I reviewed the Kickstarter and Indiegogo TOUs to determine whether, based on my Creator-Backer relationship analysis in chapter 3, and in light of the application of EU consumer law as described in chapter 4, the TOUs, which govern the Creator-Backer contract, are drafted in a way that could constitute MCPs in relation to Rewards.

Specifically, my review examines whether misleading statements are made regarding Rewards (i) arriving on time; (ii) being delivered at all; or (iii) conforming to Backer expectations in such a way that is likely to cause the average consumer to take a transactional decision they would not have taken otherwise.129_{Regarding misleading omissions, my review examines whether the}

TOUs fail to disclose in a clear, intelligible, unambiguous or timely manner, information about the risks of late delivery, non-delivery or non-conformity in such a way that is likely to cause the average consumer to take a transactional decision that they would not have taken otherwise.130

I have chosen to focus on the MCPs because: (i) late delivery, non-delivery and non-conformity are the three types of Campaign failure identified in the Kickstarter Study,131_{and (ii) MCPs are}

UCPs under the UCPD and CPUTRs.132_{Furthermore, given the information-intensive online}

setting in which RBCF occurs and the lack of physical, face-to-face interaction in the Creator-Backer relationship, the MCPs appear to be the UCPs most likely to be engaged in by Creators.

5.2.2 Results – TOUs and risk of delay

Kickstarter and Indiegogo’s TOUs state that delivery delays may occur.133_{They impose}

obligations on Creators regarding avoidance and disclosure of delays, albeit to differing extents. Kickstarter’s TOUs simply state that: ‘the date listed on each reward is the Creator’s estimate of

when they will provide the reward – not a guarantee to fulfil by that date. The schedule may change as the creator works on the project.’134

129 UCPD article 6; CPUTRs regulation 5 130 UCPD article 7; CPUTRs regulation 6

131 Mollick (n 1) 2. The Kickstarter Survey found that 60.40% of Backers received their Reward, 13.56% were not expecting a Reward, 18.82% were, at the time of survey, waiting but still expecting to receive the Reward, 5.2% said the project had failed because they now never expect to get a Reward, and 2.02% said that the Project had failed because they received the Reward but it was not what they were promised.

132 UCPD articles 6&7; CPUTRs regulations 5&6 133 Kickstarter (n 38) section 4; Indiegogo (n 37) section 5 134 Kickstarter (n 36) section 5

To what extent does EU consumer law implemented in the UK provide a high level of consumer protection for UK project backers against misleading commercial practices by project creators concerning the risks of delay, non