SETTING UP A SYNDICATE

CONSUMER PROTECTION LEGISLATION

Syndicators and racing club businesses are required by law to portray offers to consumers, in a fair and honest manner. There are three relevant elements of consumer protection legislation, the Consumer Protection from Unfair Trading Regulations 2008, the Consumer Rights Act 2015 and the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013.

Consumer Protection from Unfair Trading Regulations 2008

The Consumer Protection from Unfair Trading Regulations 2008 (henceforth the CPRs) address unfair commercial practices by traders when dealing with consumers, creating associated criminal offences.

A consumer is defined as "...an individual acting for purposes that are wholly or mainly outside that individual’s business."

A trader is "...a person acting for purposes relating to that person’s business, whether acting personally or through another person acting in the trader’s name or on the trader’s behalf and [except in relation to consumer’s rights to redress] includes a person acting in the name of or on behalf of a trader."

A commercial practice is defined as "...any act, omission, course of conduct, representation or commercial communication (including advertising and marketing) by a trader, which is directly connected with the promotion, sale or supply of a product to or from consumers, whether occurring before, during or after a commercial transaction (if any) in relation to a product."

A product includes goods, a service, digital content, immovable property, rights or obligations and a trader who demands payment from a consumer in full or partial settlement of their liabilities, or purported liabilities, is considered to be offering to supply a product to the consumer.

Goods means any tangible moveable items, with certain proviso for water, gas and electricity.

Consumer Rights Act 2015

The Consumer Rights Act 2015 (henceforth the CRA) provides consumers with certain statutory rights when being supplied with goods and/or services by traders. It also prohibits the use of unfair terms in consumer contracts (those between consumers and traders with the exception of contracts of employment or apprenticeship). Under the CRA a trader claiming that an individual was not a consumer must prove it.

The CRA defines a consumer as "...an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession." However, for many of the CRA’s provisions a person is not a consumer in relation to a sales contract if the goods are second-hand goods sold at public auction, provided individuals have the opportunity of attending the sale in person.

A trader is defined as "...a person acting for purposes relating to that person’s trade, business, craft or profession, whether acting personally or through another person acting in the trader’s name or on the trader’s behalf."

Goods has the same definition as in the CPRs.

Generally, a trader cannot rely on a term that attempts to restrict a consumer’s statutory rights in relation to either goods or services.

Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013

The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (henceforth ICAC) apply to most contracts between consumers and traders and introduce rules around the provision of information to consumers as well as a 14 day cooling off period during which a consumer can choose to cancel certain contracts provided it were agreed away from business premises or via a distance method ( such as online or over the phone).

ICAC differentiates between sales contracts and service contracts.

A sales contract "...means a contract under which a trader transfers or agrees to transfer the ownership of goods to a consumer and the consumer pays or agrees to pay the price, including any contract that has both goods and services as its object."

A service contract "...means a contract, other than a sales contract, under which a trader supplies or agrees to supply a service to a consumer and the consumer agrees to pay the price."

Definitions of consumer and trader are identical to those in the CRA.

The BHA 'Code of Conduct for syndicates' is supplementary to the above and cannot be used to imply BHA (or other) accreditation.

TERMS AND CONDITIONS

A Syndicator's Terms and conditions (T&C) should be transparent i.e. expressed in plain, intelligible language, legible and not contradict main body content. Any terms that are not transparent are likely to be considered unfair and therefore unenforceable.”

The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 apply to consumer contracts whether agreed at a trader’s premises, away from a trader’s premises or at a distance (i.e. over the phone or online). In all scenarios they require certain information to be provided to consumers before they enter into a contract and if it isn’t provided, the trader is likely to be in breach of contract, with the consumer entitled to seek an appropriate remedy. Consumers may also be entitled to a cancellation period when entering into contracts concluded away from a trader’s premises or via a distance means. Furthermore, the use of premium-rate phone helplines and negative options to sell additional products incidental to the main product, are both prohibited. Syndicators should seek specific legal advice on these matters before formulating terms and conditions.

Best practice dictates that full T&C should be displayed on the Syndicator’s website or other marketing devices.

Where a consumer is invited to buy from a website using an ‘add to basket’ device or similar, the full T&C should be displayed prior to the commencement of the purchasing procedure. The law states that it is an offence to withhold material information from consumers, thereby impairing their ability to make informed decisions.

Material information is the information a consumer needs to make an informed transactional decision. Therefore if a syndicator failed to provide a consumer with material information, or did so in a manner that was unclear, unintelligible, ambiguous or untimely, this could amount to a criminal offence under the Consumer Protection from Unfair Trading Regulations 2008.

OWNERSHIP STRUCTURES

The BHA specify five categories of ownership registration. These play a key role in determining how Syndicators should portray their offers to consumers.

The BHA ownership structures are as follows :-

The actual BHA registration of an ownership entity cannot be used to mislead or confuse consumers. Therefore, for example, if a 'racing club' business manages to register its ownership with the BHA as a 'syndicate' this does not necessarily entitle the entity to portray itself to consumers as a 'syndicate'.

Where an entity offers more than one of the ownership structures to consumers, the offers must be separately and clearly defined. The business names (or other identifiers) must not create confusion. For example, if the entity has a mixed offering, it would not be best practice to name the business XYZ Syndicates if indeed there are two separate products. For example, although XYZ Racing Club may be a sister business of XYZ Syndicates, the two are totally separate entities, requiring separate sets of Terms and Conditions.

Successful BHA registration of an entity cannot be portrayed in consumer offers as though it is some form of accreditation. For example; a syndicator should not state something like 'BHA registered' as a stand-alone statement.

Note: although a 'Racing Club' is defined by the BHA as an 'ownership entity', this refers to the status of the racing club business, not to the entity's consumer offer.

THE OFFER

Any offer must not be misleading, even if it were clarified elsewhere in communications to the consumer. For example if the arrangement is a racing club (where the members do not acquire ownership rights) any offer must not portray it as bestowing ownership or part-ownership. In such circumstances use of the word 'owner' or a derivative, should be avoided.

In accordance with the BHA definition, the term 'racing club' is reserved for entities selling memberships in an entertainment linked to the club's (the business's) ownership or leasing of a horse and where the club members are not becoming part owners of the horse.

Even though race prize money won by the horse may be shared amongst the members of a racing club, the sale of a membership should not be described as the purchasing of a 'share of a horse' and neither should a member be described as a 'shareholder'.

In the racing syndicates and clubs industry, the term 'share in a racehorse' or 'share', or similar, widely infers the purchase of a share in the ownership of a racehorse or a leasing arrangement of a share involving beneficial ownership of a racehorse.

Describing membership of a racing club (where ownership is not acquired by the consumer) using terminology such as “share” or “shareholder” could constitute an offence.

SATISFACTORY QUALITY / FITNESS FOR PURPOSE

A syndicator should take reasonable steps to ensure that a horse is in a fit enough condition to withstand training at the point they purchase the horse. By omitting to bring to a consumer’s attention to material information, for example that a horse has a known injury potentially preventing it from racing, a syndicator may commit a criminal offence.

INVESTMENT

Whilst there can be the odd exception to the rule, racehorse ownership is widely acknowledged to be anything but an investment opportunity, it could be misleading to state or imply 'investment' in consumer offers.

Advice should be sought from a solicitor and an accountant, when setting up a syndicate business. The content of this website does not constitute legal advice.