Crowdfunding refund judgment doesn’t quite open the floodgates

2 months ago admin Comments Off on Crowdfunding refund judgment doesn’t quite open the floodgates

It’s a pointer – not a cast-iron legal precedent

The decision by District Judge Clarke in the Luton County Court, England, held that Retro Computers Ltd (RCL), a disreputable British company that took half a million pounds from 4,500 members of the public via Indiegogo two years ago and then delivered no products, has been hailed by some as paving the way for litigating against delayed crowdfunding projects.

Like any good thing, the decision was a bit more complicated than that. First of all, a county court decision is not a legally binding precedent; it might be viewed as “persuasive” but it’s not a hard and fast thing. You’ll have to argue your case each and every time on its merits rather than just referring to this one.

More importantly, the specific circumstances of that case, while not unique, meant that the Indiegogo terms and conditions were judged to be mostly irrelevant. The claimant, Rob Morton, took RCL to court to get his money back after his promised ZX Spectrum Vega Plus console was not delivered. The judge ruled that RCL had formed an implied contract of sale between itself and Morton. This, said the judge, was because RCL had directly emailed Morton urging him to give them money for one of the first 100 consoles – and the payment he made was recorded by Indiegogo’s systems as an “order”. Not a “pledge” or an “investment”, but an “order”.

The only thing in Indiegogo’s terms and conditions which was relevant to the case, according to the judge, was the section which states: “Campaign Owners are legally bound to perform on any promise and/or commitment to Contributors (including delivering any Perks).” Other than that, the rest of it simply wasn’t relevant, the judge ruled. This goes some way towards excusing Indiegogo’s lack of engagement with projects that turn bad; in particular, to The Register‘s knowledge, the RCL case. We are aware of quite a few backers who contacted the platform only to be fobbed off or ignored.

Had RCL not directly emailed its customer urging him to buy one of its products through Indiegogo, and had Indiegogo’s systems not recorded his payment as an order, the outcome could have been very different. District Judge Clarke discussed this in his judgement:

The judge also dismissed RCL’s argument that the product was still in production and had merely been delayed for two years, saying the company was “under an obligation to provide within a reasonable period”, adding: “The claimant appears to have contacted the company and requested a refund because there was no progress in production of this handheld computer. It is clear to me on the information I have received that he was asking for his money back if it wasn’t being produced. The defence was very much on the basis of ‘it will be delivered’. We are now some months down the line and it still hasn’t been delivered and in those circumstances I am satisfied he gave notice that time was effectively running out.”

What this means is that the judge imposed a duty of reasonableness on RCL, saying that it had then breached that duty by stringing Morton along for so long. Could that be applied to other crowdfunding projects where the company making the goods insists, in the face of all reason, that it is “delayed” and not “dead”? Quite probably.

As far as applying these specific observations to other crowdfunded projects goes, it is hard to draw any specific points, other than to say that if you make an “order” then you have quite probably formed a contract of sale, if you’re in England and the firm making your gadget is also subject to English law.

This court ruling is not a set of general principles that can be applied to other legal cases. Yet it does point the way for future court cases to cut through the belief that using the magic word “crowdfunding” makes contract law disappear. ®

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