Special Disclaimer: This article is an original work of Mankun Law Firm. It represents only the personal views of the author and does not constitute legal consultation or legal advice on specific matters.
Special Disclaimer:
This article is an original work of Mankun Law Firm. It represents only the personal views of the author and does not constitute legal consultation or legal advice on specific matters. For reprint permissions, please contact Mankun Law Firm personnel at: MankunLawFirm
On April 12, 2022, XPeng Motors was penalized by the Chaoyang District Administration for Market Regulation in Beijing for infringing consumer rights. The penalty arose because consumers purchasing vehicles via the app were required to sign purchase agreements online containing non-negotiable arbitration clauses. See Administrative Penalty Decision No. [2022] 2094 of the Chaoyang District Administration for Market Regulation, Beijing.
Article 12 of the Measures for the Punishment of Acts Infringing upon Consumer Rights and Interests provides that where business operators use standard terms, notices, declarations, store postings, or similar instruments when providing goods or services to consumers, they shall prominently draw consumers’ attention to content materially affecting consumers’ interests and provide explanations upon consumers’ request. They shall not include provisions containing the following:
(3) Excluding or restricting consumers’ rights to file complaints, report violations, or initiate litigation in accordance with law. Pursuant to Article 15 of the Measures for the Punishment of Acts Infringing upon Consumer Rights and Interests, the party was ordered to rectify the unlawful conduct and was subjected to the following penalties: a warning and a fine of RMB 3,000.
Notably, in another case, the Pudong New Area Administration for Market Regulation in Shanghai reached the opposite conclusion.
In August 2019, Mr. Yang requested that the Pudong Administration for Market Regulation investigate and punish a game platform company for alleged violations related to standard terms, arguing that the arbitration clause in those terms increased his burdens and violated regulations governing standard terms. The Pudong Administration issued a Notice on the Handling of the Report, declining to accept the matter. Mr. Yang subsequently filed an administrative lawsuit. Both the first-instance and second-instance courts rejected Mr. Yang’s claims. (See the Ten Typical Administrative Trial Cases of 2020 released by the Shanghai High People’s Court.)
Where there are internet users, disputes arise; where disputes arise, mechanisms for resolution are needed.
Applying for arbitration and filing lawsuits in court are both lawful means of resolving legal disputes. Compared with litigation, arbitration offers greater confidentiality. Once litigation judgments are published on the China Judgments Online website, a company’s reputation may be adversely affected, potentially encouraging imitation by other users and leading to an increase in legal disputes involving the platform, which would be even more undesirable.
Accordingly, many internet companies stipulate arbitration as the dispute resolution mechanism in their user agreements, commonly using language such as:
This raises the question: Are arbitration clauses in User Agreements truly effective? Recently, clients served by the Mankun team specifically consulted us on this issue. Below, we discuss this matter in detail.
Website “User Agreements” May Stipulate Arbitration
Pursuant to Article 2 of the Arbitration Law of the People’s Republic of China, disputes arising between citizens, legal persons, and other organizations of equal status concerningcontractual disputes and other disputes over property rights and interests may be submitted to arbitration.Cases involving personal status relationships, such as marriage, inheritance, maintenance, and succession, as well as administrative disputes that must be handled by administrative organs in accordance with law, are not subject to arbitration. Disputes arising from the performance of a “User Agreement” constitute ordinary contractual disputes and fall within the scope of matters arbitrable.
The jurisdiction of an arbitral tribunal is founded on an arbitration agreement reached between the parties. Only where the parties have entered into a legally valid arbitration agreement may disputes be submitted to arbitration for resolution.
In ordinary contracts, if the parties negotiate and execute an arbitration clause designating a sole arbitral institution, the clause will generally be recognized as a valid arbitration agreement. In platform businesses primarily providing internet services, dispute resolution mechanisms are typically stipulated in the “User Agreement.” The agreement is provided by the platform operator (website or software provider), and users signify acceptance by clicking “Confirm” or “Accept.” Generally, if a user does not accept all terms of the agreement, their use of the service will be restricted.
From the perspective of the contracting method alone, it appears that users have no choice regarding whether disputes will be resolved through arbitration. Would arbitration-related provisions in contracts executed in this manner be deemed invalid?
Under the relevant provisions of the Civil Code, the assessment of standard terms in a “User Agreement” primarily proceeds along two dimensions:incorporation review and validity assessment,as discussed below.
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Incorporation Review
For terms that materially affect the counterparty’s interests, the party providing the standard terms must fulfill special obligations to prompt attention and provide explanations. Otherwise, such standard terms do not become part of the contract and are deemed not incorporated.
In other words, if the platform fails to prominently highlight and explain important terms, including them is equivalent to not including them at all.
Article 496 of the Civil Code of the People’s Republic of China defines standard terms as terms prepared in advance by a party for repeated use and not negotiated with the counterparty at the time of contract formation.
Where a contract is concluded using standard terms, the party providing such terms shall determine the rights and obligations of the parties in accordance with the principle of fairness, and shall take reasonable measures to draw the counterparty’s attention to terms that exempt or limit its liability or otherwise materially affect the counterparty’s interests, and shall explain such terms upon the counterparty’s request.If the party providing standard terms fails to fulfill its obligation to prompt attention or provide explanations, resulting in the counterparty’s failure to notice or understand terms that materially affect its interests, the counterparty may assert that such terms do not form part of the contract.。
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Validity Assessment
After standard terms are incorporated into the agreement, their validity must be assessed. The primary basis for this assessment is Article 497 of the Civil Code.
Article 497 of the Civil Code of the People’s Republic of China provides that a standard term is invalid under any of the following circumstances:
(1) It falls under the invalidity scenarios prescribed in Section 3, Chapter VI, Part I of this Law and Article 506 of this Law;
(2) The party providing the standard term unreasonably exempts or limits its own liability, increases the counterparty’s liability, or restricts the counterparty’s principal rights;
(3) The party providing the standard term excludes the counterparty’s principal rights.
In practice, courts across different regions have largely developed a unified approach to the incorporation review of standard terms, primarily evaluating factors such aswhether users were required to click to read the terms, whether users were prompted to pay attention to the terms, and whether the terms were presented in a distinctive manner.However, there is inconsistency in the validity assessments of arbitration clauses agreed upon through standard terms.
(I) Arbitration Clauses Deemed Valid
1. In the case of Xu Gaofeng v. Shanghai Wangzhiyi Network Technology Development Co., Ltd., concerning an application to confirm the validity of an arbitration agreement, the Shanghai No. 1 Intermediate People’s Court held: “Litigation and arbitration are two distinct dispute resolution mechanisms, each with its advantages and disadvantages. Compared with litigation, arbitration is characterized by efficiency and finality (one award being final). Moreover, in arbitration proceedings, the arbitral tribunal has the authority to require the losing party to compensate the prevailing party for reasonable expenses incurred in handling the case. Therefore,choosing arbitration to resolve disputes is equal for all contracting parties and cannot be regarded as excluding one party’s principal rights, nor does it constitute a situation where Wangzhiyi Company exempts itself from liability or increases the counterparty’s liability.Thus, even though Article 10.B of the License Agreement is a standard term, it does not fall under any invalidity scenario.” [Case No. (2020) Hu 01 Min Te 622]
2. In the service contract dispute between Xu Ming and Shanghai Shulong Technology Co., Ltd., the Pudong New Area People’s Court of Shanghai held: “... The dispute in this case falls within the scope of arbitration prescribed by law. Regarding the validity of the arbitration clause,the clause designates a specific and definite arbitral institution and is not a standard term that unreasonably exempts or limits the defendant’s liability, increases the plaintiff’s liability, or restricts or excludes the plaintiff’s principal rights. It does not violate other mandatory provisions of laws and regulations.Furthermore, the defendant highlighted the clause in red font in the agreement, thereby fulfilling its reasonable obligation to prompt attention. Accordingly, the arbitration clause should be deemed legally valid.” [Case No. (2022) Hu 0115 Min Chu 41973]
Similar views were expressed in cases such as [Case No. (2022) Jing 0491 Min Chu 1077], [Case No. (2022) Jing 04 Min Te 462], and [Case No. (2021) Chuan 71 Min Zhong 166].
(II) Arbitration Clauses Deemed Invalid
1. In the vehicle lease contract dispute among Tu Guanguo, Shenzhen Qianhai Liandong Cloud Car Rental Co., Ltd. Nanning Branch, and others, the Chongzuo Intermediate People’s Court of Guangxi Zhuang Autonomous Region held: “... Parties enjoy the right to choose the court with jurisdiction over their disputes. In this case, both the plaintiff and the defendant should enjoy this right.The defendant, by pre-drafting a clause on agreed jurisdiction, made it difficult for the plaintiff to exercise this right. Therefore, this standard term excluded the plaintiff’s right to choose the court with jurisdiction.The right to choose judicial jurisdiction is an important procedural right enjoyed by the parties.The plaintiff’s right was excluded by the standard term in this case.Therefore, the standard term on agreed jurisdiction for dispute resolution provided by the defendant clearly excluded the plaintiff’s right to choose agreed jurisdiction. The plaintiff’s claim that the standard term on agreed jurisdiction for dispute resolution in the contract at issue is invalid is supported by this Court.” [Case No. (2019) Jing 04 Min Te 21]
2. In the online service contract dispute between Beijing Hulian Jingwei Technology Development Co., Ltd. and Li Mingjun, the Beijing No. 4 Intermediate People’s Court held: “In this case, the ‘End User License Agreement’ at issue is a contract concluded using standard terms. Its arbitration clause is a term that materially affects the interests of the counterparty.Beijing Hulian Jingwei Company, as the provider of the standard form contract, failed to adopt special markings such as distinctive text, symbols, or fonts sufficient to draw the user’s attention, thereby failing to fulfill its reasonable obligation to prompt attention.Based on Li Mingjun’s assertions, this Court finds that the arbitration clause in the standard form contract at issue was not formed.” [Case No. (2021) Jing 04 Min Xia Zhong 5]
In that case, the Beijing No. 4 Intermediate People’s Court deemed the arbitration clause invalid because the contract provider failed to fulfill its reasonable obligation to prompt attention, not because the clause was found to exclude the counterparty’s important rights.
Through research on relevant cases, we find that in practice, courts and judicial authorities remain inconsistent in their adjudicatory approaches to arbitration clauses stipulated via standard terms. However, in recent years,an increasing number of cases have recognized that arbitration clauses may be stipulated in standard terms such as “User Agreements.”
Meanwhile, if internet platform operators choose arbitration as the dispute resolution mechanism, they should adopt appropriate presentation and prompting methods to ensure the purpose of the arbitration clause is achieved. Mankun Lawyers offer the following recommendations:
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Use prominent highlighting methods: employ boldface, underlining, different fonts, or alert symbols to clearly distinguish these terms from other provisions;
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Require users to actively click to consent, avoiding implied consent;
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Present important clauses such as dispute resolution mechanisms on a separate page or include them in the prominent notices at the beginning of the agreement text, rather than placing them at the end where they may be obscured among numerous other clauses.
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