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Amazon Seller Deactivations: Two Contracts, Two Companies and Why It Matters
By Michael Coyle, of Lawdit Solicitors
This is the second of a series of articles on the High Court path for UK Amazon sellers who have had their accounts disabled and cash withheld. Part 1 lays out why we think a coordinated claim is properly disputed. This Part examines in more detail the contractual structure Amazon has created a situation around its sellers, and the usual case Amazon has been running before the Financial Ombudsman Service. This defence is, in our judgement, far more flimsy than Amazon’s actions would imply it thinks it is.
Two contracts. Two firms. One sign-up flow
When a UK firm registers to sell on Amazon, it does so through what feels like one registration process. It’s actually taking out two different contracts with two different companies.
The first is Amazon Services Europe Sàrl, a firm incorporated in Luxembourg, which manages the marketplace itself – the listings, fulfilment, A-to-z claims, storage of goods, returns handling and, critically, the suspension and deactivation of selling powers. We’ll name it ASE. The Business Solutions Agreement is its contract with the seller. It is governed by the laws of Luxembourg and has a jurisdiction provision in Luxembourg. ASE is not regulated by the Financial Conduct Authority.
The second is Amazon Payments UK Limited – APUK – a UK-incorporated company licensed by the Financial Conduct Authority as a payment institution under the Payment Services Regulations 2017. APUK receives the buyers’ payments and puts them into protected accounts to be paid to the vendor. This contract is the Selling on Amazon Payments User Agreement with the Seller. It is regulated by and shall be construed in accordance with English law. The English courts shall have jurisdiction.
We do not consider separation to be an accident. It’s the structural element that lies behind Amazon’s normal argument to seller fund-freezes, and it’s the one that the Financial Ombudsman Service has, in a long line of recent decisions, become increasingly reluctant to accept.
The normal fact pattern
The story of the vendor who comes to us is almost always the same. They have a substantial trading operation on Amazon: hundreds or thousands of fulfilled orders, an established product variety, and an inventory position. At some point ASE disabled the seller account. The reasons differ – a problem with KYC documentation, a dispute over VAT setup, an allegation of inauthenticity or counterfeit, a missed or failed verification interview, or a dispute about whether the seller is an individual or a firm – but the operational outcome is identical. ASE withdraws the selling rights and orders APUK to freeze the funds.
APUK then places the money into what Amazon calls a reserve, something people sometimes refer to as a 90-day hold. The 90 days are over. “There are no funds released. The seller emails Amazon. The vendor receives generic replies, or no reply at all. Seller writes again. Months go by. In the cases we’ve seen, the hold has typically been between one and three years. One published Ombudsman decision had the funds being held for almost three years and were in the six figures across multiple currencies.
Throughout, the seller is assured the problem is “under review”. No particular worry is expressed. No new developments in the investigation. The seller has no means of testing what is being said. And in the meantime ASE continues to charge the seller storage costs on stock they are holding and won’t release.
Amazon’s argument — and why it’s been failing
The Amazon scenario when the seller complains has always been the same: the operational decision was ASE’s; ASE is in Luxembourg and is not FCA-regulated, and APUK is therefore able to act on the instruction of ASE without any further enquiry. This is the corporate-architecture defence – the notion that the two contracts and the two entities shield APUK from liability for what ASE has determined.
The Financial Ombudsman Service has now rejected that defence a number of times.” In every published decision we have seen, five different ombudsmen – Burch, Brooke-Smith, Kerrison, Russ and Ingram – have come to the same conclusion. APUK is the FCA-authorised body. APUK holds the money. And APUK cannot escape responsibility for holding it by pointing to a corporate affiliate. The usual remedy of the Ombudsman has been to release the monies with eight per cent simple interest from the date when the funds should have been released and, in some cases, an additional sum for inconvenience.
That is a major tailwind for any seller contemplating a High Court claim. It is no replacement for one, however. The Ombudsman has limited powers to compensate, cannot require disclosure, and cannot make a ruling on the underlying contractual interpretation that is binding on Amazon for future cases. All of these things can be done by the High Court.
What the contract actually states
The operative section of APUK’s Selling on Amazon Payments User Agreement provides that APUK may restrict access to the seller’s account balance “in such amounts and for such time as we reasonably deem necessary.” A series of triggers – financial danger, suspected breach, inability to verify identification, a dispute involving the account, system security – supports the provision, which has a separate suspension clause and a wide exclusion of liability for losses resulting from suspension.
The clause is broad. It is not infinite, however, and the language is more restrictive than Amazon’s actions imply it thinks it is. “Reasonably deem necessary” is an objective criteria. A party holding a contractual discretion of this kind is not at liberty to exercise it on any basis it wishes. The English courts have said, in a line of cases that such discretions must be exercised rationally, in good faith and only by reference to relevant considerations. We consider it a significant question whether APUK has met that requirement, in cases where it has held a seller’s money for two or three years on the basis of an unspecified concern expressed by ASE, a matter which has not yet been submitted to an English court. detention for the period required to finish an investigation is not a condition that allows for unlimited detention. If there is no inquiry being pursued – and in every decision we have examined the Ombudsman has repeatedly been unable to find any significant investigation by Amazon – then the provision simply has nothing to do.
The argument is that the clause is not void. The point is that it is less labour than Amazon has been portraying it as being. That’s exactly the sort of question on which an authoritative ruling would be helpful.
There’s a second contractual argument, not so doctrinally secure as the first, but it’s worth running with it. The relationship between an Amazon seller and APUK has many of the characteristics identified by the courts as marking out a ‘relational’ contract: a long-term arrangement, substantial mutual dependence, and a position in which one party’s livelihood is bound up with the other’s discretionary decisions. In such contracts the courts have been prepared to infer a duty of good faith. Not an obligation to deliver cash on demand but a responsibility not to employ discretionary powers arbitrarily, capriciously, or for collateral objectives.
The good-faith argument is not as settled as it once was. Since 2021, the Court of Appeal and Supreme Court have shown a degree of caution in routinely assuming good faith duties. The argument is thus a secondary thread, not the main rope. But we believe the contractual discretion remains properly available. The exercise of the contractual discretion is marred in a way that Amazon finds unappealing: the extended silence, the absence of any demonstrated investigative progress, and the resort to corporate-affiliate explanations are just the sorts of conduct that a court attuned to good-faith considerations is likely to scrutinise critically.
The exclusion clause
The Payments Agreement specifies a comprehensive exclusion of liability for losses of “any kind, direct or indirect” resulting out of suspension of the service. Here is what I have to say about it.
Second, the Unfair Contract Terms Act 1977 applies. Section 3 of the Act applies to normal-form business-to-business contracts. It is not limited to consumer transactions, and it does not need the seller to be a small business. The reasonableness test it imports is a genuine stumbling block for a phrase of this scope placed into a standard form contract on which a payment institution seeks to escape liability for keeping a customer’s money.
Secondly, even if the clause were to escape the UCTA test on some narrow formulation, in our judgement it does not defeat a claim in unjust enrichment for the time value of money wrongly retained or a claim for breach of statutory duty arising under the Payment Services Regulations 2017. In one of the rulings considered, the Financial Ombudsman has previously determined that the exclusion clause does not allow APUK to keep payments charged for a service that never took place. The reasoning for that decision is simple and applies with greater force to the retention of the principal sum itself. In our opinion, a language purporting to preclude culpability for the retention of money that does not belong to the person retaining it is on the wrong side of the queue.
Where is this heading
It’s the mix that counts. A contractual discretion that must be exercised reasonably and rationally; a relational background in which good faith is properly engaged; an exclusion clause that does not cover the most important measure of loss; and a developing FOS line in which Amazon’s standard structural defence has now been rejected by the ombudsman. This is a serious case taken together, not a hopeful one.
Part 3 moves away from the contractual setting to the restitutionary and statutory causes of action: the unjust enrichment claim, the interplay between APUK’s safeguarding duties under the Payment Services Regulations 2017 and its asserted right to hold funds at the behest of ASE, and the practical matter of jurisdiction over the Luxembourg entity.
If you are a UK-based Amazon seller and your selling account has been terminated and APUK still holds payments that have not been released to you, we would want to hear from you. Time is of the essence – the limitation under the Limitation Act 1980 extinguishes the oldest claims, and the sooner we get the documents, the better situated we are to judge where you sit on that timeframe and whether your case fits inside the cohort we are assembling.
Please contact Michael Coyle at michael.coyle@lawdit.co.uk or using the contact form at lawdit.co.uk.
The material in this article is of a general nature and is not intended to be legal advice. Each instance has different facts. The merits of any particular claim and the prospects of recovery can only be judged after a proper study of the seller’s documents and correspondence with Amazon. Lawdit Solicitors is authorised and regulated by the Solicitors Regulation Authority.
