Arbitration against consumers in digital asset disputes –a review of two recent cases

There are many reasons (both commercial and legal) as to why a party or parties might elect to refer a dispute as between them to arbitration. In cross-border cases, this could be to ensure that a dispute is determined within a certain jurisdiction, language or otherwise pursuant to specific laws. In addition, and in the absence of a flagrant disregard of the relevant terms or the referral to Court for assistance, the arbitration will be confidential (which could be important).

In addition to the above, the parties will likely also need to consider the specific industry that the relevant parties are doing business in, and potentially the strength of bargaining positions.  Arbitrations against international consumers is a complicated topic and this blog highlights two recent English cases (specifically in the digital asset space).

The first case to be considered is Soleymani v Nifty Gateway LLC [2022] EWCA Civ 1297. In this case, Mr Soleymani (a consumer) took part in an online auction where he was bidding for a non-fungible token (NFT) through the Nifty Gateway platform. Nifty’s terms of use (on their website) contained provisions which: (1) referred disputes to JAMS Arbitration in New York and (2) were subject to New York governing law. The auction that Mr Soleymani had participated in was not a conventional auction (i.e. where the highest bidder wins). Instead, it was a ranked auction in which the 100 highest bidders were successful and each bid received an NFT associated with the relevant artwork (but linked to their position in the bidding hierarchy). Mr Soleymani did not realise that this was the case and placed a bid of $650,000, which came third in the auction.

Following his discovery of the auction type, he withdrew the cryptocurrency which was held on account on the Nifty Gateway platform. Nifty commenced JAMS Arbitration in New York to recover the $650,000 payment, and Mr Soleymani commenced proceedings in England. At first instance, a stay of the English proceedings was granted. However, on appeal, the Court of Appeal reversed the stay of proceedings and directed a trial of the issue of whether the arbitration agreement was null and void in respect of certain of Mr Soleymani’s claims. This was in part because Mr Soleymani was seeking to enforce and rely on his domestic consumer rights. In that regard, and at paragraph 143 of the judgment: “Accordingly in a case in which a claimant seeking to avoid a stay under s9 is relying on their rights under domestic law as (arguably) a consumer to contend that the arbitration clause is null and void (etc.) then that feature would be a powerful factor in favour of the court deciding the issue rather than leaving it in the first instance to the arbitral tribunal, despite any overlapping issues…”

The second case is Chechetkin v Payward Ltd & Others [2022] EWHC 3057 (Ch). In this case, Mr Chechetkin (a consumer) pursued a claim in England against a cryptoasset trading platform operated by Payward Ltd. The claims were framed under UK financial services legislation (namely the Financial Services and Markets Act 2000 – FSMA) for the repayment of sums that he said had been lost as a result of breaches of the various requirements of FSMA (in the amount of £600,000).  Payward challenged jurisdiction (but did not seek a stay under section 9 of the Arbitration Act 1996) in England and relied on an arbitration clause in favour of JAMS arbitration in California (and a governing law clause in favour of the laws of California). Payward had obtained a partial award in that arbitration and had commenced enforcement proceedings in England under the New York Convention. The court ultimately dismissed the jurisdiction challenge application brought by Payward. In that regard, the Court helpfully commented about the construction of a stay being sought: First, an arbitration clause (or indeed an award) does not deprive this court of jurisdiction. The Arbitration Act sets out, as Sales J said, a code. Among other things, it enables the court to stay proceedings where the parties have entered into a binding arbitration agreement. The relevant provision, section 9, applies to both domestic and international arbitrations. Where a party applies for a stay under the section and the court accedes to the application, that does not remove the court’s jurisdiction over any existing proceedings. It enables a party to the arbitration agreement or award apply to stay them and to give effect to the contract between the parties by doing so.

What is apparent is that the rights of consumers in international jurisdictions (to the arbitration reference) will be carefully considered and protected. From a public policy perspective, the courts in some jurisdictions will have to reconcile the tension between the sanctity of an agreement to arbitrate verses the protection of the rights of individual consumers.

We expect that these cases are the tip of the iceberg and that many organisations both in this sector and others will begin reviewing (or have already reviewed) their contractual terms and strategies for dealing with these issues (and that counterparties will be re-visiting whether or not there are grounds to challenge existing arbitration provisions).  It is also possible that there many other cases like this that are either already taking place in confidential arbitration procedures, or otherwise will soon be initiated.


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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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