Validity of Arbitration Agreement in Consumer Dispute

6 October, 2022

In Soleymani v Nifty Gateway LLC (“Nifty”) (The Competition and Markets Authority intervening) [2022] EWCA Civ 1297 the Court of Appeal (Popplewell LJ, Birss LJ and Snowden LJ) considered, for the first time post-Brexit, the interplay between the legal frameworks for consumer protection and for international arbitration.

This is the first case to explore the extent to which a party who wishes to exercise his or her English law consumer rights to invalidate an arbitration agreement is able to have those rights determined by the English Court, and a rare example of a case in which the English Courts may decline a stay of court proceedings in favour of an arbitral tribunal on the validity issue.  It is also the first English case to consider the hierarchy of the Brussels Recast Regulation as between arbitration and consumer rights.

The background to the case was that the Appellant, Mr Soleymani, took part in an auction held on the Nifty’s (the Respondent’s) online platform bidding on a blockchain based non-fungible token associated with an artwork by the artists known as Beeple. Nifty’s terms of use, on the website, contain a New York governing law provision and an arbitration providing for arbitration in New York under the JAMS Rules.  A dispute arose in relation to the auction and Nifty commenced arbitration proceedings in New York.

Mr Soleymani then commenced a claim before the English Court seeking, inter alia, declaratory relief that: (i) the arbitration agreement is unfair and not binding upon him as contrary to the English consumer rights protection (the “Arbitration Agreement Claim”); (ii) that the governing law clause is unfair and not binding as contrary to English consumer rights protection (the “Governing Law Claim”); and (iii) the contract resulting from his bid, if it be binding contract, was illegal ab initio as contrary to the Gambling Act 2005 (the “Gambling Act Claim”).  Nifty applied to strike out the claim on the basis that: (i) the Court had no jurisdiction to determine the claim as it fell under the ‘arbitration exception’ of the Brussels Recast Regulation; and (ii) to stay the English claim under s. 9 of the Arbitration Act 1996 (“the 1996 Act”).  At first instance the Judge held that the Court had no jurisdiction to determine the Arbitration Agreement Claim, but it did have jurisdiction to determine the Governing Law Claim and the Gambling Act Claim.  But the Judge then stayed these claims under S. 9 of the 1996 Act in favour of being decided by the JAMS arbitrator in the New York arbitration.

Permission to appeal was granted by Males LJ on basis of a real prospect of success and the appeal raising generally important issues, and an expedited trial ordered.

On appeal, the Court of Appeal (in a judgment of Popplewell LJ) upheld the Judge’s finding that the Arbitration Agreement Claim was outside the Court’s jurisdiction on the legislative/CPR regime when the claim was started, though noted that amendments to the CPR from 1 October 2022 were likely to provide jurisdiction for such claims going forwards.  The principal reason for this was that the Court of Appeal concluded that when the Civil Jurisdiction and Judgments Act was amended to incorporate into domestic law the parts of the Brussels Recast Regulation providing jurisdiction for consumer and employment disputes, it also incorporated the existing hierarchy of the Recast Regulation and that the correct interpretation of that hierarchy was that where arbitration is the subject matter of the proceedings, they are excluded from the scope of the Recast Regulation.  This general hierarchy was not reversed in a consumer rights case.

However, the Court overturned the Judge’s direction that the claim be stayed under S. 9 of the 1996 Act (in a judgment written by Birss LJ) and directed that there be a trial of whether the arbitration agreement was “null and void, inoperative, or incapable of being performed”, finding that the fact that the challenge to the arbitration agreement was based on a vindication of a claimant’s arguable consumer rights was a powerful factor in favour of refusing a stay.

The judgment is available here.

Graham Dunning KC and Angeline Welsh of Essex Court Chambers acted for Mr Soleymani, together with Iain MacDonald, instructed by Steven Tregear, Dan Hoyle and Alice Rudge of Russells.