I thought the way Kickstarter worked was if a project failed (as in both the project was not funded and the creators failed to deliver the promised product), it was mandatory to refund all backers?
I'm not exactly sure though.
Legally and by the terms of service of Kickstarter, yes. However, Kickstarter itself does nothing to enforce giving refunds. All they do is have language enabling legal action in the event that a project is unable to fulfill its promises.
Basically the door is open for the backers to sue the people behind the project for breach of contract.