Published on 11 November 2022.
A new challenge to English consumer protection law is in the making for international online auction platforms selling decentralized and anonymized assets such as NFTs and other crypto assets to English consumers.
The recent case of Amir Soleymani -v- Nifty Gateway LLC (1) and its Appeal (2) illustrate some of the issues that can arise when online auction platforms sell digitalized art to international consumers. The Court decided on the appeal, that English consumers should be entitled to public hearings of consumer cases in English Courts in determining their consumer rights, rather than those cases being determined in private overseas arbitrations.
Background
Nifty is a US company which operates an NFT trading platform. Mr Soleymani is said to be an experienced art collector and had bid previously for many NFTs on Nifty’s platform. Between April and May 2021, he placed bids for a piece of work called “Abundance” by Beeple. Work by Beeple had previously fetched $69.3m at the first NFT auction run by Christie’s. Mr Soleymani successfully bid $650,000 for Abundance through Nifty’s platform. Unfortunately, Mr Soleymani was not the only successful bidder, there were 99 other successful bids. What Mr Soleymani received was edition 3 of 100. He was the third highest bidder, but he was not aware that there could be more than one successful bid. Mr Soleymani had believed there would be only one successful bid.
A dispute arose, with Mr Soleymani claiming it had not been made clear that there could be more than one successful bid. Nifty maintained that auction rules were clearly displayed and Mr Soleymani would have seen the auction rules as he had clicked a button that said, “How does this work”. He also challenged Nifty’s general terms and conditions of business for the use of the platform, which among other things required that disputes should be resolved by arbitration in New York. Users of the platform are required to confirm they have read the terms and conditions before proceeding and there was a hyperlink to Nifty’s terms and conditions.
London High Court challenge
To try to prevent an arbitration in New York, Mr Soleymani issued proceedings in England to challenge the arbitration agreement contained in Nifty’s terms and conditions.
The challenge failed. English courts have for many years taken a supportive approach to arbitration and in this instance recognized that arbitral tribunals can, and frequently do, determine issues as to their own jurisdiction. The English court decided it was appropriate for this issue to be determined by the New York arbitral tribunal itself.
Court of Appeal
In round 2 of what is likely to be a long running saga involving multiple jurisdictions, Mr Soleymani appealed the decision of the High Court to the English Court of Appeal on grounds:-
- The High Court erred in finding that it did not have jurisdiction since English consumer protection rights were the subject matter and the focus of his Claim.
- The High Court erred in concluding that it did not have jurisdiction to determine separate claims regarding the proper law of the NFT Auction contract and that such contract was in breach of English Gambling laws.
- The High Court erred in staying the English proceedings without determining the issue of the fairness of the foreign arbitration agreement, or directing a trial, before the English courts of that issue.
Interestingly though, the UK consumer rights regulator, the Competition and Markets Authority, intervened in the submissions to the court because of the very high-profile nature of the case, the NFT subject matter, and how the auction terms of business interacted with Consumer rights law in the UK. This step emphasized how the UK authorities see it is important that the English Courts, rather than an arbitration tribunal sitting in New York, give better protection to English law Consumer rights in Crypto Asset and NFT transactions. Access to justice was thought to be made more difficult by the decentralized and anonymized nature of such assets.
The Appeal Court ruled in favour of Mr. Soleymani that there should be a trial before the English court as to whether the Arbitration agreement was null and void, inoperative, or incapable of being performed. This was, effectively a backdoor route allowing the English court to hear his consumer rights claims, because they were tacitly ruling that mandatory arbitration overseas of issues affecting consumer rights were likely unfair and should not necessarily be binding on English consumers.
The other grounds of the appeal were dismissed and since the appeal was only partly successful and the decision was an interim jurisdiction hearing, the detailed consequence of the enforceability of the arbitration agreement will be decided at a further hearing in the High Court in London, with the remaining part of the New York Arbitration still going ahead. These two parallel proceedings may result in an Award by the New York Arbitrator, that conflicts with a decision of the High Court in London.
Comments
- The English court recognized, in the first hearing on the subject matter of NFT’s, that the decentralized and anonymized nature of NFTs, may make access to justice for those in disputes more difficult than those of other asset classes.
- When digitalized assets are sold through online auction sites, the English courts will look to see if that platform “reaches out” to sell into the UK jurisdiction and UK consumers so they can buy them free of geolocating and blocking software. If they can be purchased by UK consumers, the Court will look to give full effect to consumer protection laws including those outlawing mandatory foreign arbitration, mandatory foreign law, and other unfair contract terms.
- Contract lawyers, who more usually draft and work on B2B contracts, need to be very cautious in drafting dispute resolution clauses in B2C cross border contracts, as it is very easy to overlook, or even not to be aware of the extra territorial effect of consumer protection laws in jurisdictions overseas of the online sales platform.
- Anyone using such platforms, particularly when buying high value items as consumers, are well advised to ensure they read the auction rules and terms and conditions very carefully and take legal advice, if necessary, before proceeding. Think before you click!
We will give updates on this case as the matter progresses in The English courts and The New York Arbitration tribunal when they are published.
Footnotes
[2022] EWHC 773 (Comm)
[2022] EWCA Civ 1297
Written by John Abbott & Paddy Kelly, Partners at Laytons ETL.
