06/04/2022

“Decentralised and borderless” NFT auction is outside the reach of English consumer protection legislation

The London Circuit Commercial Court’s significant judgment in Amir Soleymani v Nifty Gateway LLC is the latest step in the emerging jurisprudence in cryptoasset litigation, and is understood to be the first to concern non-fungible tokens, or “NFTs”. The judgment represents an interesting development in the law on the allocation of jurisdiction in cryptoasset cases.

The case was brought by Amir Soleymani, a well-known collector of blockchain-based “NFTs” (cryptoassets which are associated with digital works of art) against Nifty Gateway LLC, a company based in New York which operates the online platform Nifty Gateway, a marketplace for NFTs. Mr Soleymani had participated in an auction of NFTs associated with the artwork “Abundance” by the digital artist Mike Winkleman, known as Beeple (who attracted attention when an NFT associated with the work “Everydays: the First 5000 Days” sold at Christies for US$69.4 million). According to Nifty Gateway, Mr Soleymani had placed a winning bid for certain NFTs but had wrongfully refused to pay for them. Nifty Gateway commenced an arbitration, seated in New York, to recover that sum, pursuant to an arbitration agreement in Nifty Gateway’s terms of use. Mr Soleymani resisted those proceedings on both jurisdictional grounds and on the substance of the claim.

In parallel to the New York arbitration, Mr Soleymani brought a claim before the English courts, seeking a declaration that the arbitration agreement in Nifty Gateway’s terms of use was unenforceable because it was unfair under English consumer protection legislation in the form of the Consumer Rights Act 2015. Mr Soleymani also made alternative claims seeking to attack the governing law clause in the terms of use (which provided for New York law) on the same grounds, and declaring that a contract arising from the auction was void for illegality pursuant to the Gambling Act 2005. Mr Soleymani’s sole ground for invoking the English court’s jurisdiction was the gateway recently introduced in s.15A-E of the Civil Jurisdiction and Judgments Act 1982, which essentially replicates in English law, following Brexit, the provisions of the Recast Regulation relating to consumer contracts. Nifty Gateway responded by contesting the English court’s jurisdiction and alternatively seeking a stay under s.9 of the Arbitration Act 1996.

The court upheld Nifty Gateway’s challenge, dismissing or staying Mr Soleymani’s claims. The court held that the gateway in s.15A-E of the CJJA did not apply to Mr Soleymani’s claims to invalidate the arbitration agreement, since they fell within the arbitration exclusion in the Recast Regulation. In doing so the Court rejected Mr Soleymani’s argument that the subject-matter of the claims was “consumer rights” rather than “arbitration”. The court further held, in accordance with the principles laid down by the Court of Appeal in Aeroflot v Berezovsky [2013] EWCA Civ 784, that while Mr Soleymani was in principle entitled to raise English consumer protection issues under s.9(4) of the Arbitration Act 1996, issues regarding the validity of the arbitration agreement, including questions of the fairness of the terms of use in the context of Mr Soleymani’s assertion that he acted as a consumer, were more properly dealt with by the arbitral tribunal. The consumer rights issues raised by Mr Soleymani would require the English court to make factual findings that overlapped with the substance of the dispute and so were properly within the arbitral tribunal’s jurisdiction; Mr Soleymani had not provided any evidence that the New York arbitration would produce any material imbalance between the parties as compared to litigation in England; the relevance of English consumer protection law was hotly disputed given that the terms were governed by New York law; and the express agreement to a New York seat was analogous to an exclusive jurisdiction clause in favour of the supervisory New York courts as regards remedies attacking the award. It followed that a stay under s.9 must also be granted in respect of those claims that did not impeach the arbitration agreement.

Andrew Feld represented Nifty Gateway LLC, instructed by Osborne Clarke LLP.