Welcome to our NFT litigation roundup.
Non-Fungible Tokens (NFTs) are the topic of much debate and interest and the questions, legal issues and disputes around them continue to soar.
When faced with such a high growth phenomenon, the law can take time to catch up. Boodle Hatfield is closely monitoring the developments and each month will bring you a roundup of the key NFT disputes to be aware of.
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England & Wales
Amir Soleymani v Nifty Gateway LLC
The background details of this case are covered by our April roundup and can be found here.
- As described in our April roundup, in May and June 2021 Soleymani was involved in an auction for an NFT associated with the artist known as "Beeple". Soleymani submitted one of the winning bids for the NFT, with his bid of $650,000 ranking third highest.
- According to the terms of sale, Soleymani and the other 98 top bidders were expected to accept second edition (and lower value) NFTs. This meant Soleymani would receive NFT edition number 3 for $650,000. He refused to pay, arguing that his bids were made "with the intention of acquiring the original artwork offered for sale in the Abundance Auction and not the third or any other edition thereof". Nifty Gateway subsequently froze Soleymani's account and blocked access to his assets (which included over 100 NFTs).
- Nifty Gateway commenced arbitration proceedings in New York seeking payment of the $650,000 bid from Mr Soleymani. This was done pursuant to the arbitration and governing law clauses in Nifty Gateway's standard terms and conditions.
- Mr Soleymani filed a counterclaim in New York and issued a separate claim in London, seeking a declaration that the arbitration and governing law clauses in the terms and conditions were unfair, contrary to English consumer rights protections, and so not binding on Mr Soleymani, Mr Soleymani also claimed that any contract arising from the bid was void under the Gambling Act 2005.
- Nifty Gateway contested the English Court's jurisdiction and sought a stay of proceedings.
The High Court decision
- The High Court of England & Wales accepted jurisdiction to hear the non-arbitration aspects of the claim (being the governing law clause and the Gambling Act claim). The High Court did not, however, accept jurisdiction to hear a challenge on the arbitration agreement. This was due to an issue which arose from the interaction between arbitration and consumer rights in EU rules and how those apply following Brexit. The Court ordered a stay of proceedings in favour of the New York arbitration, so that issues around the enforceability and validity of the arbitration agreement could be left to the New York arbitrator.
Permission to appeal
- Permission to appeal the High Court's decision has now been granted by the Court of Appeal. The Court of Appeal held that the question of whether a US arbitration clause in Terms of Business is valid should be allowed to proceed to trial. The question for the English Court will now be whether the arbitration clause contained in Nifty Gateway's terms of use is unfair, and therefore unenforceable against Mr Soleymani, under the Consumer Rights Act 2015.
- Lord Justice Birss commented that "the case Mr Soleymani is seeking to make has implications for consumers in general in this jurisdiction and it is important that they are considered and ruled upon in public in a court". It is therefore clear that the consumer context of the dispute was an important factor. It is worth noting that the UK Competition and Markets Authority intervened, urging the court to reach the conclusion they did. This was due to their concerns about the judgment having the effect of undermining consumer rights
- Lord Justice Birss further held that " in a case like this one, provided it is properly arguable that there is a consumer contract with a close connection with the UK and a consumer seeking to rely on their rights under domestic law, then in my judgment the vindication of those consumer's rights in that context is best decided by a domestic court. That applies directly to the submission under s9(4) that the arbitration agreement is null and void (etc.) because it is unfair under domestic law. That is because the domestic court is better placed to undertake the fairness assessment under domestic law than a foreign arbitrator would be applying that law."
- The New York arbitration is continuing in parallel with these English proceedings. We therefore may end up with conflicting decisions on the validity of the arbitration agreement.
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