The Court of Appeal of England and Wales in Soleymani v Nifty Gateway LLC[1] has set aside a stay to allow the English court to determine the validity of an arbitration clause contained in a contract between an English consumer and a foreign company. The stay had been imposed by the Commercial Court under section 9 of the Arbitration Act 1996 (the ‘AA’) in favour of arbitral proceedings in New York. The Court of Appeal considered that the case had significant implications for consumers in general and it was therefore important that the issues were considered and ruled upon in public in an English court rather than privately in a US arbitration.
Background
The claimant, Mr Soleymani, was a collector of fine art and non-fungible tokens (‘NFTs’) associated with art. The defendant, Nifty Gateway LLC (‘Nifty’), operated an online platform for the display and sale of digital art, which was traded as NFTs. The NFTs were traded by individual sales or by auctions held on Nifty’s platform. Nifty’s terms of use included a New York governing law provision and an arbitration clause providing for arbitration with seat in New York.
Prior to the auction that was the subject of the dispute, Mr Soleymani had purchased over US$2.5 million of NFTs through Nifty’s platform and had participated in 24 auctions. These auctions had been conventional, with a single highest bid securing the relevant NFT.
The subject of the dispute was a ‘ranked’ auction, in which the 100 highest bidders each received NFTs associated with the artwork, which were in effect a numbered edition corresponding to the position of their respective bids. Mr Soleymani’s bid of US$650,000 was the third highest. Mr Soleymani alleged that he was unaware that the auction was in this form, which he said made little commercial sense for the bidder, since editions that are not the ‘first edition’ carry a significantly lower value, whereas all the bids would have been submitted on the basis of seeking to obtain the ‘first edition’. Some time after discovering it was a ranked auction, Mr Soleymani withdrew his cryptocurrency from his account on the platform to avoid paying the amount of his bid.
Nifty commenced arbitration in New York for breach of contract.
The English proceedings
Mr Soleymani commenced court proceedings in England, advancing three claims:
- A claim for a declaration that the arbitration clause was unfair and not binding on him since: (i) he was a ‘consumer’ within the meaning of the Consumer Rights Act 2015 (the ‘CRA’); (ii) the contract relationship between him and Nifty had a ‘close connection with the UK’ within the meaning of the CRA, particularly because (as Nifty knew) Mr Soleymani was habitually resident in the UK and because Nifty solicited business or otherwise directed its activities to the UK; (iii) Nifty’s terms of use were therefore subject to the fairness requirement under the CRA; and (iv) the arbitration clause was unfair in that it caused a significant imbalance in the parties’ rights and obligations to the detriment of Mr Soleymani (the ‘Arbitration Claim’).
- A claim for a declaration that the governing law clause was unfair and not binding on him for the same reasons as the Arbitration Claim (the ‘Governing Law Claim’).
- A claim that the contract resulting from the bid was illegal as contrary to the Gambling Act 2005 (the ‘Gambling Act Claim’).
Nifty challenged the jurisdiction of the English courts to determine the Arbitration Claim. It also applied for a stay of the English court proceedings pursuant to section 9 AA in respect of the Governing Law Claim and the Gambling Act Claim to allow these to be determined in the New York arbitration. Section 9 AA provides that ‘the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed’.
The Commercial Court ruled in Nifty’s favour: it granted a declaration that it did not have jurisdiction to determine the Arbitration Claim and stayed the Governing Law Claim and Gambling Act Claim.
Mr Soleymani appealed.
The Court of Appeal’s judgment
Jurisdiction over the Arbitration Claim
The Court of Appeal upheld the Commercial Court’s decision regarding lack of jurisdiction over the Arbitration Claim. While the Civil Jurisdiction and Judgments Act 1982 contains provisions that consumers may sue and must be sued in their own jurisdiction, these provisions do not apply if the essential subject matter of the claim concerns arbitration (eg a claim to have an arbitration agreement declared invalid).
This aspect of the judgment is of less interest now than it otherwise would have been: as anticipated in the judgment, as of 1 October 2022, an amendment to a jurisdictional gateway has now come into effect that will allow the courts of England and Wales to exercise jurisdiction over challenges to the validity of arbitration agreements where the offer of the relevant agreement has been received within England and Wales.[2]
Stay in respect of the Governing Law Claim and Gambling Act Claim
Despite its determination regarding lack of jurisdiction over the Arbitration Claim, the Court of Appeal nevertheless set aside the stay in respect of the Governing Law Claim and Gambling Act Claim.
Despite the clear overlap between the three claims, the Court determined that the stay should be lifted on that basis that it was ‘properly arguable’ that Nifty’s terms of use were a consumer contract with a close connection with the UK within the meaning of the CRA and, if they were, determination of the issues raised were of public importance.
As the Court noted, ‘no matter how global, borderless or decentralised a trader would say its internet business is, if the trader has directed its relevant commercial activities to this country then its dealings with consumers here are subject to our consumer law.’
While the Court recognised that arbitrators are of course used to adjudicating upon issues of foreign law, it considered that English courts would be much better placed to do so as our consumer law ‘engages principles which are the subject matter of our domestic jurisprudence, not simply some general notion of fairness.’
Takeaway
In light the introduction of the enlarged jurisdictional gateway, this judgment is only of moderate interest from a procedural perspective. However, its significance lies in the demonstration of the Court’s eagerness that all consumer rights issues should be dealt with in the English courts. We wait to see whether that sentiment will carry through to the final determination of the Governing Law Claim.
[1] [2022] EWCA Civ 1297
[2] Civil Procedure Rules Practice Direction 6B, paragraph 3.1(6)(a)(ii)
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