30th May 2022
Walker Morris Commercial Dispute Resolution Partners Gwendoline Davies and Nick McQueen and Associate Kieran Craddock consider a recent case where the court stayed a consumer claim relating to an online auction bid for an NFT in favour of arbitration in New York.
Soleymani v Nifty Gateway LLC  is one of the first English court decisions concerning this type of digital asset and is yet another example of this jurisdiction continuing to position itself at the forefront of developments in this area .
The decision also reinforces the arbitration-friendly approach of the English courts and highlights their reluctance to interfere with the jurisdiction of the arbitral tribunal, even where questions of English consumer law are involved. It is interesting to see the court’s consideration of the factors tipping the balance in favour of leaving the US arbitrator and the New York court to decide issues going to the validity of the arbitration clause and to supervise the arbitration.
Arbitration remains a popular alternative to court litigation and is the method of choice for resolving cross-border disputes. Governing law and jurisdiction clauses can present numerous traps for the unwary, often resulting in unnecessary time and cost being spent further down the line when a dispute arises. Parties should ensure that they give careful thought to the drafting of these essential clauses from the outset, tailored to the particular circumstances .
Walker Morris has a large team of specialists experienced in all aspects of commercial dispute resolution across all sectors, including national and international arbitration. Three of our partners are Fellows/Members of the Chartered Institute of Arbitrators. Our Technology & Digital experts are well placed to advise on disputes involving blockchain and other technologies.
The claimant, a UK resident, took part in an auction on the defendant’s online platform where digital assets can be bought and sold. He placed several bids for a blockchain-based NFT associated with a piece of digital artwork. The defendant informed the claimant he had been a “winner” and was liable in the sum of his last bid, which the claimant disputed. There was an issue as to what the claimant would have seen or reasonably understood before making bids.
The claimant argued that the defendant’s arbitration clause (either alone and/or in conjunction with the governing law clause) was not binding on him, by reason of being unfair under the Consumer Rights Act 2015 (CRA) and inconsistent with his rights under the Civil Jurisdiction and Judgments Act 1982 (CJJA).
The CJJA, which implemented the EU regime on judgments and jurisdiction, was amended in light of Brexit to include specific provisions on jurisdiction in consumer contracts. It provides that a consumer has the right to sue or be sued in their home jurisdiction. While the CJJA expressly follows the equivalent EU legislation in that it does not apply to arbitration (the ‘arbitration exception’), the claimant argued that the special protection afforded to consumers took the matter outside the scope of that exception.
The claimant also argued that any contract entered into arising from the placing of his bid was void for illegality under the Gambling Act 2005.
The defendant disputed jurisdiction. The court had to decide whether to decline jurisdiction or stay the proceedings under its general case management powers and/or section 9 of the Arbitration Act 1996 (the Act) .
The defendant was entitled to a stay of all parts of the claim under section 9 of the Act. It was also entitled to an order that the court had no jurisdiction in relation to the claim for a declaration that the arbitration clause was unfair and not binding on the claimant.
The claim for a declaration that the arbitration clause was not binding fell within scope of the arbitration exception. The claimant’s attempt to characterise the claim as falling outside the exception was inconsistent with English and EU court decisions. There was no basis to suggest that the CJJA gives a consumer resident in England an entitlement to have the validity of an arbitration clause in a consumer contract decided in England, and nowhere else.
The claims in relation to the governing law clause and the Gambling Act did not fall within the exception as their main focus was not arbitration.
As to whether the CRA was applicable at all, the court was satisfied that section 89 of the Act (which provides that the CRA is extended to apply to an arbitration agreement and applies “whatever the law applicable to the arbitration agreement”) is part of English law and applies to an arbitration agreement regardless of the place of arbitration and the governing law of the arbitration agreement.
It was common ground that the claimant was party to a concluded arbitration clause, even if it was disputed whether that clause could be enforced against him. Whether applying English or New York law the arbitration clause clearly covered issues going to its validity and enforceability, even if the issues raised were consumer protection ones based on English law.
It was accepted that the Gambling Act claim and the dispute as to whether the governing law clause was unfair did not call into question the arbitration clause. They were plainly matters within its scope, even if they involved English law questions. Accordingly a stay had to be granted under section 9 of the Act, unless the claimant could satisfy the court under section 9(4) that the clause was “null and void, inoperative or incapable of being performed” on the balance of probabilities.
The claimant was entitled to raise issues under section 9(4) and the court has choices (and must take a view) on how to approach them. It can decide them on the evidence before it (a ‘summary determination’), order a trial of those issues, or decline to order a trial and stay the proceedings (typically on the basis that they can be addressed in the arbitration).
  EWHC 773 (Comm)
 See, for example, Ground-breaking Digital Dispute Resolution Rules published, English law can accommodate smart legal contracts, English court grants wide-ranging relief after cryptocurrency scam and Blockchain and commercial disputes: new Law Society guidance
 See our earlier briefings The importance of drafting effective dispute resolution clauses and Arbitration clauses and the need for clear drafting
 Where court proceedings are brought against a party to an arbitration clause/agreement, in respect of a matter which is to be referred to arbitration in accordance with that agreement, the party may apply to the court under section 9 for a stay of those proceedings. See our recent briefing.
 Enka v Chubb  UKSC 38, see our earlier briefing