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E-commerce contract considerations
This article was first published by LexisNexis Middle East in the Middle East Law Alert, January/February 2022 edition, to view the article online click here.
An e-commerce aggregator or a marketplace is essentially an intermediary between buyers and sellers. Therefore, there must be agreements with each of the sellers in the marketplace and the buyers who are the users of the online platform.
In addition, most e-commerce marketplaces outsource all or some part of their supply chain management to third-party logistics providers or 3PLs, particularly the delivery of products to end customers. This means a marketplace must also have a robust logistics agreement with these 3PLs.
An e-commerce marketplace can either have standard terms and conditions which sellers must accept before registering and creating a seller profile on the marketplace website or stand-alone agreements which are entered into with each seller.
Typically, e-commerce marketplaces in the start-up phase have a separate agreement for each seller as a result of unique commercial terms negotiated with each seller. However, in the UAE it is common to see a hybrid model, i.e. the commercial terms are reflected in a simple agreement which includes a link to a standard seller terms and conditions set out as a link on the marketplace’s website.
Each online marketplace is also unique and therefore, the agreement must also set out the nature and business model of that marketplace.
Depending on the nature of the marketplace, the agreement must include details of the products and services, the mode of collection of payments from users, i.e., cash on delivery, card on delivery or online payment, the marketplace’s commissions and fees, who will be delivering the products/services and refund policies.
A marketplace is generally not a party to the transaction between the buyer and the seller and the agreement must clarify that the seller should be responsible for liabilities in relation to the sale of the products or services. In addition, this section of the agreement will generally set out the marketplace’s rights and powers, such as removing sellers who are in breach of the agreement.
While it is challenging to implement, an online marketplace should impose restrictions on sellers directly reaching out to the customers to obviate the payment of the marketplace’s commissions and fees.
A seller agreement must also list the seller’s warranties in relation to its products or services and various seller obligations such as not selling prohibited items and providing services in a professional way.
The seller and marketplace will be providing a license to the others to use their intellectual property such as any logo and brand name for marketing and promotional purposes during the course of the agreement.
In terms of indemnity clauses, the seller indemnifies the marketplace for any liabilities devolving the marketplace which is attributable to defects or deficiencies in the seller’s products or services or for any contractual breach.
The DIFC Courts are a popular dispute resolution forum for e-commerce companies although locally owned marketplaces prefer to stick to the jurisdiction of local courts.
User Terms and Conditions (T&Cs)
Every website must have user terms and conditions which represent the agreement between the website and users of the website or application.
In most cases, a marketplace is merely an intermediary and so they must clarify, in the T&Cs, that they are not the seller of products or services listed on the website. The contract formed on the completion of a sale for third-party products or services is solely between the buyer and third-party seller. The marketplace is not a party to this contract and does not assume any responsibility from it or in connection with it. However, some marketplaces do intervene in disputes to help customers sort out any issue with the seller’s products.
Provisions relating to accountability for defective products or services must be set out in the T&Cs in the event of a customer complaint.
A returns and refund policy should ideally stipulate a time frame for returns or refunds, list return requirements, define the expected condition of returns and set out the methods of refunds.
In addition, logistics agreement with 3PLs must include, among other things, provisions on the scope of work, performance standards, branded attire for delivery persons, liability for failure to deliver on time, termination and intellectual property considerations.