Sharing economies, also known as ‘marketplaces’, the ‘collaborative economy’ and the ‘peer-to-peer market’ have steadily grown in Australia over recent years (for the purposes of this article, we will refer to sharing economies as a Marketplace). We would know – having seen a steady increase in the number of clients requesting Marketplace Terms and Conditions for the marketplaces they are creating. In this article, we will consider the key relationships with a marketplace and highlight the main legal documents that govern these relationships.

What is a Marketplace?

At a fundamental level, a Marketplace is typically an online platform introducing a party who is seeking particular goods or services (Customer) with another party who can supply such goods or services (Supplier). The Customer and Supplier then arrange amongst themselves the cost, payment and delivery. Aside from making this introduction, the Marketplace is not involved in any part of the transaction between the Customer and Supplier.

Some Marketplaces have a small degree of involvement such as offering a payment gateway (generally provided for by a third party service provider such as PayPal or Stripe) for Customers and Suppliers to transact through the website. Other Marketplaces may be even more involved by collecting payment on behalf of the Supplier and require payments to be held until the completion of certain events (e.g. confirmed delivery of goods) before money is passed through from the Customer to the Supplier. It is important to note that the greater a Marketplace provider’s involvement, the greater the exposure to liability.

Marketplace Income

The Marketplace can generate income through several mechanisms such as:

  • Charging participants of the Marketplace (i.e. the Customer and the Supplier) a small fee for being a member of the Marketplace;
  • Charging the Supplier a small fee for listing on the Marketplace;
  • Taking a percentage commission from each transaction between the Customer and Supplier; and/or
  • By collecting fees from third party advertisers.

Your Marketplace And…

As you set up your Marketplace, you will enter into a number of relationships. You should consider each relationship and the instrument governing this relationship and determine whether this instrument helps to protect your rights and limit your liability. Typically, these relationships and instruments are between you, as the operator of the Marketplace and:

  • Your Customers and Suppliers – this is typically covered under one document called the Marketplace Terms and Conditions. This document does not cover the relationship between the Customer and each Supplier. Instead, it sets out the terms and conditions for how each Customer and each Supplier can use your Marketplace platform. Key features of this document includes:
    • how each Customer and Supplier can use your Marketplace (e.g. do they have to create an account, do they have to post listings);
    • how payment is made between Customer and Supplier;
    • what payment do you collect from a Customer and/or Supplier for their use of the Marketplace; and
    • prohibited use and conduct of the Marketplace.
  • Your Developer – whom you’ve engaged to set up the back-end systems to your Marketplace website and/or application. A Services Agreement should govern this relationship (sometimes called an IT Services Agreement or Developers Agreement), setting out key matters including:
    • the services to be provided by your developer;
    • the different stages of work to be performed;
    • when you can expect completion of each stage; and
    • when you may be required to make payment.
  • Your Data Storage Provider – whom you’ve engaged to host your website, application and data about the members of your Marketplace. Again this relationship should be governed by a Services Agreement. However key features of this agreement may include:
    • platform uptime and how much notice you’ll be given before a server maintenance;
    • your rights over the data – how you can request access, control or deletion of the data;
    • where your data will be stored; and
    • how you can export your data if you terminate your agreement or cancel the services.
  • Other service providers such as payment gateway providers (if there is a payment facility built into your Marketplace website), employment agreements and contractors’ agreements.

A Marketplace Website and/or Application may also require:

  • a Website Terms of Use, covering general access and use of the website by a third party user regardless of whether or not they participate in the Marketplace;
  • an Application Terms of Use – similar to a Website Terms of Use but governing third party use or access of your application;
  • Privacy Policy – setting out how your business collects, uses and discloses personal information.

More Parties to this Polyamorous Relationship

The successes of other marketplaces such as Uber, AirBnB and eBay are an inspiration to many. The road to such success requires protection against or minimising the effect of potential commercial and legal risks. There are also other issues to consider when operating a Marketplace such as:

  • Insurance – whether your insurance arrangements meet your needs as a marketplace operator;
  • Tax – whether you are aware of your tax liabilities;
  • Employment – whether your Marketplace is correctly structured so that Suppliers of services will not be deemed your contractors or employees;
  • Australian Consumer Law (ACL) – in some circumstances, operating a Marketplace will constitute providing a service that is subject to the ACL. Any terms and conditions governing the use of your Website, Application or Marketplace are likely to be considered standard form contracts and subject to the ACL regulation regarding unfair contract terms (particularly in light of the soon to be enforced unfair contract term protections for small business contracts).

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Although current laws and regulations are still adapting to the form and function of Marketplaces, the underlying risks and liabilities remain the same and can be mitigated through awareness of current laws and adequate contractual protection.

Questions about your Marketplace, or need assistance drafting your Marketplace Terms and Conditions? Ask our online business lawyers on 1300 544 755.

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