NFTs: arbitration in the digital art marketplace

Amir Soleymani v Nifty Gateway LLC [2022] EWHC 773 (Comm) united some of our Art & Luxury team’s favourite subjects – NFT art, auctions, and arbitration. This case, heard on 24 March 2022 before Ms Clare Ambrose QC (sitting as a Deputy High Court Judge), concerned a bid the claimant, Mr Soleymani, placed in an auction on the defendant’s online platform on 2 May 2021 and the arbitration clauses that governed the resulting dispute.

Nifty Gateway LLC – a US-based entity operating what ARTnews describes as a “premiere NFT trading platform” and which is owned by Cameron and Tyler Winklevoss – offers an online platform where NFTs can be bought and sold, whether by auction or by direct sales between users. Mr Soleymani is a regular collector of art and is experienced in the NFT space. Indeed, prior to the auction in question, he had purchased over 100 NFTs on the platform and had been involved in at least 10 different auctions.

Between 30 April 2021 and 2 May 2021, Mr Soleymani placed bids for Abundance, an NFT by Beeple, whose works have previously fetched extraordinary sums – $69.3 million at Christie’s first NFT auction in March 2021.  Mr Soleymani’s winning bid was for $650,000, but what he didn’t realise was that he was not the only winner. Instead of one winner, there were one hundred, and bidders were competing for not one NFT but one hundred editions of the NFT. Their ranking in the leader board of winning bidders would determine the edition number they received. Mr Soleymani was the third highest bidder; accordingly, he received edition 3 of 100.

Nifty Gateway LLC claimed that the auction’s rules were clearly displayed, albeit by clicking on a caption reading “How does this work”. The information was also displayed on the leader board screen which displayed the bids being made. Mr Soleymani did not recall seeing any such confirmation screen or explanation.

Also in dispute were the general terms and conditions that governed Mr Soleymani’s use of the defendant’s platform. When Mr Soleymani initially signed up to the platform – around 26 February 2021 – he would have seen a sign-up page for the platform with the tag stating “By signing up, you agree to the Terms and Conditions and Privacy Policy”. He was not required to scroll through either document to sign up for the platform as they were both hyperlinked. In these hyperlinked terms and conditions was the arbitration clause stating that New York law governed the use of the platform and disputes were to be resolved by binding arbitration in New York. Unsurprisingly, when Mr Soleymani refused to pay, the defendant started arbitration in New York in July 2021. While Mr Soleymani filed a motion to stay the New York arbitration, it is still ongoing, with an evidentiary hearing listed for September 2022.

Alongside his motion to stay, Mr Soleymani filed the current proceedings in the UK in September 2021. In doing so, he advanced three claims: (i) that the clauses specifying New York governing law and arbitration were unfair and not binding per the Consumer Rights Act 2015; (ii) these unfair terms were not binding upon him as they were inconsistent with his rights under the Civil Jurisdiction and Judgments Act 1982; and (iii) the contract was illegal under the Gambling Act 2005 (despite the contract being governed by New York law).  While Mr Soleymani claimed that these first two grounds rendered the arbitration agreement invalid and therefore null and void, he did not raise any concerns regarding the quality of the arbitration the parties had undergone to date, the process followed in New York, or the supervision of the New York courts. Ultimately, the Court decided that the dispute need not only be adjudicated upon by the English court and that the New York court and US arbitrator were perfectly capable of deciding the issues in the case, including those which went to the validity of the arbitration clause itself. Indeed, arbitrators in London and the English courts are often required to consider points of foreign law, and the issues in dispute between the present parties were not so specific to the UK – if they were at all – that the New York arbitration should be impeded.

The fact that Mr Soleymani was caught out despite being a regular user of the platform is an important reminder to read – and re-read – the terms that govern our actions in the digital marketplace and the disputes that stem from them. We have all brushed off online terms and conditions pages, treating them as little more than a tick-box exercise, but the consequences of getting it wrong can be costly – for Mr Soleymani, the risk is to the tune of $650,000, with legal fees on both sides of the Atlantic.