The case concerned the purchase of a Non-Fungible Token connected with an artwork by a high-net worth individual (with assets inside and outside the UK) for USD 650,000 through an online auction service that he signed up to when located in the UK.
The practical effect of this decision is that there are two parallel proceedings determining overlapping legal and factual matters. The English Courts will conduct a trial of the buyer's consumer claims. An arbitral Tribunal in New York will hear the supplier's claims for non-payment under the contract. This creates a risk of inconsistent decisions (between the English courts and the arbitral Tribunal). It also raises risks concerning enforcement. For example, if the English courts upheld the consumer claims then an award would be unenforceable in the UK and would likely lead to uncertainty over how courts in other jurisdictions would treat conflicting decisions.
In order to minimise these risks, suppliers who are offering goods or services directed to individuals in the UK, should take steps to ensure that their contract terms will satisfy the fairness requirements of the English Consumer Rights Act and be ready to defend any challenge that may be made in the English courts.
Facts
Mr Soleymani is a high net-worth individual domiciled in England (and with assets located both in the UK and in other jurisdictions), who took part in online global auctions of Non-Fungible Tokens connected with artwork hosted by Delaware-incorporated Nifty Gateway. Before the auction in question, Mr Soleymani had participated in previous online auctions operated by Nifty and purchased NFT artworks in excess of USD 2.5 million. These auctions were "conventional" auctions in that there was a single unique NFT being auctioned with the highest bid acquiring the NFT.
The auction in question was different, it was a "ranked" auction, meaning that there were 100 NFTs associated with the same artwork and the top 100 bids each received an NFT (akin to a limited edition print rather than original painting). Mr Soleymani bid USD 650,000 for an NFT of the digital artwork “Abundance” by Beeple and came third. Mr Soleymani claimed that he had bid on the basis that the auction was a conventional auction and refused to pay. Nifty commenced a claim for the bid value in an arbitration in New York under the JAMS Rules, as provided for in Nifty’s terms and conditions, which Mr Soleymani had accepted by clicking when he signed up to Nifty's online auction platform.
Mr Soleymani disputed the validity of the arbitration agreement and commenced proceedings in England seeking a declaration that: (i) the arbitration agreement was unfair and therefore not binding, (ii) the governing law clause is unfair and no binding, and (iii) the contract was illegal ab initio as contrary to the English Gambling Act 2005. The Court of Appeal observed that Mr Soleymani was an "unusual sort of consumer" but that his case was properly arguable and in order to determine if Mr Soleymani was a consumer and whether the contract met the fairness requirements of the Consumer Rights Act, a trial would need to be conducted in order to make necessary findings of fact.
Nifty brought an application seeking to challenge jurisdiction of the English Courts and sought: (i) a declaration that the court has no jurisdiction, and (ii) a stay from the court pursuant to Section 9 of the Arbitration Act 1996 (the “AA”).
At first instance the English High Court granted the declarations sought by Nifty and stayed the English Court proceedings regarding the consumer rights claims in favour of the New York arbitration commenced by Nifty. Mr Soleymani brought an appeal against these rulings. The Court of Appeal allowed the appeal to lift the stay on proceedings and directed for a trial of the issue whether the arbitration agreement is null and void, inoperative or incapable of being performed in respect of the governing law and Gambling Act claims. The freestanding claim concerning unfairness of the arbitration clause itself was found to fall outside the jurisdictional gateways. However, the Court of Appeal indicated that if it had been a claim for a declaration of non-liability due to unfairness of the contract as a whole or had been brought after amendments to the Civil Procedure Rules that came into effect on 1 October 2022, then the claim would have been subject to the same analysis as the governing law and Gambling Act claims.
The Court of Appeal decided that the public importance of having English consumer rights claims determined by the English courts outweighed the factors in support of granting a stay in favour of the New York arbitration, such as the fact that Mr Soleymani was not a usual type of consumer (including being a high net worth individual with assets inside and outside of the UK), that he would suffer no procedural disadvantage because of he had the financial means to fully participate in the arbitration and the arbitration was being conducted under the JAMS policy on consumer arbitration (which required the Tribunal to take into account fairness considerations).
Observations
This case is important for suppliers of goods and services directed towards individuals in the UK. It was sufficient in this case for the UK to be one of 49 jurisdictions to which the auction services were directed.
In reaching its decision, the Court of Appeal noted that despite Mr Soleymani being a high net worth individual and an unusual type of consumer, rulings affecting consumer rights are of public importance and therefore should be considered in a public court rather than an arbitral tribunal.
Any business which directs its commercial activities to individuals in England and Wales, regardless of where that business is located and its status as a “decentralised or borderless” business, needs to ensure that its contractual terms meet the fairness requirements of English consumer protection law and be willing to prove this is the case in the English courts if challenged.
The Court of Appeal made it clear that in such a case, the Courts of England will assess for itself whether the terms, including as to governing law and dispute resolution, are fair and comply with consumer legislation in England and Wales before determining whether to stay proceedings in favour of arbitration or other agreed dispute resolution mechanism. Arbitration remains an attractive form of dispute resolution for online agreements because of the ability to enforce awards in 169 jurisdictions under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. However, where transactions involve individuals in the UK, litigation in the English courts may be required for consumer rights claims as a precursor to or in parallel with arbitration or other dispute resolution proceedings under the relevant contract.
The next phase of the case will involve an English High Court trial to determine the merits of Mr Soleymani's consumer rights claims. It is anticipated that the outcome of these proceedings may provide guidance regarding the application of consumer protection legislation to online transactions involving high net worth individuals.
Authored by Nathan Searle and Andrea Montague-Doghan.
