Arbitrating cross-border e-commerce disputes

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Cross-border e-commerce disputes
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Cross-border e-commerce and the platform economy are rapidly developing as new forms of international trade. They are also powerful tools to promote consumption and ensure stability in foreign trade.

Cross-border e-commerce transactions often involve entities from multiple countries and regions with varying laws and regulations on consumer protection, inspection and quarantine, food safety, intellectual property, taxation and other issues.

More broadly, e-commerce faces a slowdown of global economic growth, the impact of covid-19 on the global supply chain, an intensification of international geopolitical conflicts and increasing global trade barriers.

This leaves the industry with pressures brought about by higher logistics costs, slower customs quarantine, fluctuations of foreign exchange interest rates and tightening of policies on foreign platforms, leading to both more potential risks to the development of cross-border e-commerce enterprises and a growing likelihood of disputes.

ARBITRATION TO THE RESCUE

Cross-border e-commerce disputes have emerged as one of the main types of cases accepted by the Shanghai International Arbitration Centre (SHIAC) in recent years. Between 2021 and 2022, the SHIAC handled nearly 200 e-commerce disputes involving about RMB250 million (USD36.3 million).

Disputes between e-commerce platforms and merchants were the most frequent. The most common scenarios were: disputes arising from penalties imposed by platforms on merchants for violating platform rules; from the settlement of turnover between platforms and merchants; and from claims made by platforms against merchants for compensation of defective goods in advance.

The following two cases showcase some typical scenarios and special provisions in the relevant service agreements.

SELLING COUNTERFEITS

In an ongoing arbitration case between an operator of an e-commerce platform and a resident merchant, the operator penalised the merchant on the grounds that counterfeit imported goods were sold by the merchant in its overseas flagship store of luxury bags and watches.

The operator-imposed penalties included deducting credits, removing the store and deducting the deposit plus RMB1 million, or 10 times the sales of the counterfeit products on the platform, whichever was higher. However, the merchant did not accept the platform’s authentication results, nor the punishment.

The store service agreement between the platform operator and merchants contained the following provisions on product quality and related penalties:

  • Merchants shall abide by their representations and warranties to the consumers and the platform operator;
  • The platform operator may conduct irregular checks on whether products sold by the merchant originate from a legal source;
  • The platform operator has the right to entrust third-party inspection institutions to inspect the quality of the product and issue an inspection report, and the merchant shall waive the right to raise any objection to the inspection report; and
  • The merchant shall pay a deposit to the account designated by the platform operator. In case the merchant breaches the contract, the platform operator shall have the right to directly deduct the fine, liquidated damages or compensation from the deposit.

In recent years, with the introduction of the new cross-border retail tax policy, many small and micro entities have become resident merchants in a new wave of cross-border e-commerce trade. While this promoted the development of the retail import and export business, the threshold of international trade specialisation has also been lowered.

The Civil Code, the Law on the Protection of Consumer Rights and Interests, the E-commerce Law and other laws have stipulated the responsibilities of cross-border e-commerce platforms.

According to article 38 of the E-commerce Law: “Where an operator of an e-commerce platform fails to take necessary measures when it knows or should know of the fact that merchants on its platform are selling commodities or offering services that fail to safeguard personal or property safety, or committing any other acts that impair the lawful rights and interests of consumers”, and “where an operator of an e-commerce platform fails to fulfil its obligations to examine the qualifications of the merchants on its platform that provide commodities or offer services having a bearing on consumers’ life and health, or fails to fulfil its obligations to safeguard the safety of consumers, resulting in damages to the consumers”, the operator of such an e-commerce platform shall bear the corresponding liability.

Therefore, platform operators often set strict terms and penalties in service agreements signed with merchants to restrict their business behaviour. Small and micro entities are compelled to fully accept the standard terms and conditions set by the platform operator in order to be qualified as merchants on the platform. Once disputes arise, merchants often question the validity of those standard terms.

Commercial arbitration as a dispute resolution method adopted by equal commercial parties through prior agreement can be frequently seen in the contract between cross-border e-commerce platforms and their merchants. When resolving those disputes, an arbitration institution can appoint experts with sufficient knowledge in e-commerce as arbitrators.

These experts can better grasp both the practice and the logic in this field, and thus find it easier to balance the commercial arrangements and legal provisions. This is conducive to the protection of the rights and interests of both the platform and the merchants.

WITHDRAWAL FROM SALES

In another arbitration case between an operator of an e-commerce platform and a natural person seller, the order payment was collected by the platform first, and then withdrawn by the seller. When the platform experienced a capital chain disruption, the withdrawal application made by the seller took too long to be approved, which led to disputes over the occupation of funds.

In this type of service agreement between platform and seller, the tribunal often first and foremost examines the validity of electronic contracts and the identification of the contracting parties. Individuals usually register and are certified to be a seller on the platform by signing an e-contract with the platform online.

During the performance of the contract, rights and obligations are performed between the platform and the store account. Therefore, it is worth checking whether the e-contract is valid, and the store account and seller are identical as a party of arbitration.

On the other hand, once the consumer files a claim for compensation to protect his/her interests, according to the provision in their agreement, the platform shall pay the compensation in advance and has the right to freeze the account and deduct the seller’s deposit. But if the e-commerce platform maliciously freezes the funds and deducts the deposit, sellers and e-commerce enterprises will suffer unwarranted losses.

In recent years, certain e-commerce enterprises have used international arbitration to successfully obtain frozen funds and corresponding interests from a well-known overseas e-commerce platform, setting a valuable precedent for solving such e-commerce disputes.

Compared with litigation, arbitration edges out with the finality of its awards, and is able to more efficiently protect the interests of the compromised party in cases with clear facts and sufficient evidence.

For international arbitration, the parties may come from different jurisdictions. Prior agreement on the applicable law of dispute resolution, the seat of arbitration and the way of deciding arbitrators can be conducive to achieving centralised jurisdiction and cost control of dispute resolution.


Fan Jiayu is the deputy director of the research department at the Shanghai International Arbitration Centre

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