The High Court has handed down judgment in Amir Soleymani v Nifty Gateway LLC.

The background

In 2021, Mr Soleymani, a wealthy digital art collector, participated in an online ranked auction of NFTs associated with a digital artwork called “Abundance,” in relation to 100 numbered NFTs (the “Auction”), created by a prominent NFT artist, Beeple. The Auction was held on Nifty Gateway LLC’s (“Nifty”) platform; a NFT marketplace.

On 26 February 2021, Mr Soleymani opened an account on Nifty and agreed to, and became bound by, Nifty’s Terms of Use then in force (the “2020 Terms”). On 30 April 2021, Nifty revised its Terms of Use (the “2021 Terms”). The 2021 Terms provided for the addition of a new clause 7, entitled “Terms of Sale” which stated:

“By placing an order on Nifty Gateway, you agree that you are submitting a binding offer to purchase the non-fungible token “Nifty” or service from Nifty Gateway LLC. Your order is accepted and confirmed once purchase is complete, and Nifty Gateway displays the Confirmation Page (“Confirmation Page”). YOU HEREBY EXPRESSLY AGREE THAT THE SUPPLY OF NIFTY BEGINS IMMEDIATELY AFTER THE CONFIRMATION PAGE IS DISPLAYED.”

On 30 April 2021, Nifty and Beeple entered into an agreement which provided that Nifty would offer Beeple’s NFTs on its platform in exchange for a 5% commission on sales (the “Creator Agreement”). It also made clear that Nifty, as custodian, would store the NFTs on a secure digital wallet until payment for the NFT was received.

The Auction commenced the same day and ended on 3 May 2021. In that time, Mr Soleymani placed 8 bids, with his final bid in the sum of US$650,000. Within minutes of the close of the Auction, in the early hours of 3 May 2021, Mr Soleymani tweeted an image of the leaderboard on the landing page, referring to the top three bidders (including himself) and congratulating Beeple on “successful auction” and commenting “And I do t [sic] know if I should bad for the 11th place” (that being the first position that won only a single NFT, rather than the additional editions won by the top 10). On the same day, Nifty sought to collect payment of the bid. Mr Soleymani initially suggested he would make payment, but thereafter failed to respond to repeated emails and messages from Nifty.

On 7 May 2021, pursuant to the Creator Agreement, Nifty paid Beeple the total sum of the winning bids in the Auction, less the 5% commission to which it was entitled.

In July 2021, Nifty commenced a Judicial Arbitration and Mediation Services (“JAMS”) arbitration, in New York for its claim for payment against Mr Soleymani (the “NY Arbitration”). In turn, Mr Soleymani commenced proceedings in England in September 2021 in order to prevent the NY Arbitration from taking place.

The procedural background to the proceedings is set out in further detail at paragraph 4 of the judgment, much of which was instigated by Mr Soleymani. Notwithstanding the convoluted procedural history, less than eight weeks before trial, Mr Soleymani ceased to engage in the proceedings, resulting in his claim and defence to counterclaim being struck out shortly before trial.

To facilitate enforcement, Nifty proceeded with a trial of the merits of its claim, rather than seek default judgment under CPR 3.5(2). Mr Soleymani did not attend trial and was unrepresented, but the court held that it was “plainly appropriate” to proceed in Mr Soleymani’s absence under CPR 39.3(1) because Mr Soleymani was plainly on notice of the trial, had provided no explanation for his disengagement and, ultimately, was protected by his right to apply to set aside any judgment.

Notwithstanding the above, Nifty was still under a duty of fair presentation. Whilst not a duty of full and frank disclosure, it required Nifty to: (i) present the case fairly; and (ii) identify factual or legal points for the benefit of the non-attending party, including points which might have been taken had Mr Soleymani appeared before the court.

Nifty’s Case

The crux of Nifty’s case was that: (i) as Mr Soleymani was aware of them, the auction rules both underpinned and were incorporated into any contract resulting from the Auction (“Proposition 1”); and (ii) Nifty was entitled to payment of Mr Soleymani’s winning bid of $650,000 under a collateral contract (the “Auction Contract“) (“Proposition 2”).

Proposition 1

Nifty’s primary case was that the rules of the Auction were incorporated by notice. In particular:

1. The landing page: (a) stated it was a “RANKED AUCTION;” (b) had an explanatory question-mark icon displaying the rules of the Auction when clicked; and (c) stated the numbered NFTs were to be won in accordance with ranked bids.
2. The bid screen contained a prominent notice stating the key rule that “The ranking you have determines the edition number you receive…”.
3. The nature of the Auction was explained in a direct email to bidders and statements on X published during the Auction, before Mr Soleymani placed his final successful bid.
4. In a tweet, Mr Soleymani congratulated Beeple on a “successful auction,” commenting “I do t [sic] know if I should feel bad for the 11th place.”
5. Mr Soleymani was an experienced user of Nifty and well-versed in a range of drop formats, including those that resulted in multiple winners of numbered edition NFTs.

Although Mr Soleymani’s defence claimed the rules were onerous and unusual, thus requiring clear notice to be given, pursuant to Interfoto Picture Library v Stiletto Visual Programmes Limited [1989] QB 433, Nifty responded that: (i) Mr Soleymani’s case rested on the false premise that “Ranked Auction” meant “traditional auction” such that using the phrase to describe an auction in which bids lower than first place were successful was “onerous and unusual”; (ii) there was nothing remotely onerous and unusual about the auction format; and (iii) the Interfoto principle was satisfied as the nature of the Auction had fairly and reasonably been brought to the bidders’ attention.

Nifty’s secondary case was that Mr Soleymani must have known and understood the nature of the Auction and its rules by the time he placed his successful bid.

1. Mr Soleymani’s tweet after the Auction indicated familiarity with the Auction’s mechanics and satisfaction with the process.
2. It beggars belief that Mr Soleymani, with his experience, genuinely believed the Auction was of a single NFT.
3. That the top 10 bidders, but not 11 and above, would win additional NFTs associated with digital art other than Abundance was made clear.
4. Mr Soleymani did not make any suggestion at the time that he had not understood the nature of the Auction. He did not do so publicly or in correspondence with representatives of Nifty during the Auction or when he was being chased for payment by the Defendant.
5. One of Mr Soleymani’s bids was calculated to not place him in first position.

The court came to the “clear conclusion” that the rules of the Auction were incorporated into the Auction Contract on both Nifty’s primary and secondary cases. In particular, on Nifty’s primary case, the Judge: (i) was satisfied that the rules of the Auction were brought fairly and reasonably to Mr Soleymani’s attention, given his previous participation in drops; (ii) did not regard the Interfoto principle as being engaged; and (iii) did not regard the terms of the Auction Rules as being “onerous and unusual”.

Proposition 2

Pursuant to the collateral Auction Contract, Nifty contended that Mr Soleymani was liable to pay the price of his successful bid to Nifty as auctioneer and Beeple’s agent.

1. The Auction was clearly described as an auction. That fact that the auction was virtual and the rules allowed multiple winners was no reason to modify the common law analysis of offer and acceptance or the characterisation of the tripartite contractual relationship between seller, auctioneer and purchaser.
2. The Creator Agreement made clear that: (a) the NFTs remained Beeple’s property until sold and were entrusted to Nifty for the purposes of the sale; and (b) Nifty had the classic obligations of an auctioneer, namely to sell on behalf of Beeple, to collect the price for Beeple, less a commission, and to part with the NFTs only in return for the price.
3. Clause 1 of the 2020 Terms, which stated that Nifty “is an administrative platform that facilitates transactions between a buyer and a seller but is not a party to any agreement between the buyer and seller,” reflected the fact that the auctioneer was not a party to the contract of sale and is entirely consistent with the common law analysis and with the existence of the Auction Contract (contrary to Mr Soleymani’s case).
4. Clause 7 of the 2021 Terms was also consistent with the common law analysis and reflects the fact that Nifty, as agent, makes the contract of sale for Beeple and the price is payable directly to Nifty pursuant to the Auction Contract.

In holding that the facts and Terms of Use were consistent with the orthodox common law analysis of a successful bidder’s liability to an auctioneer, the court accepted Nifty’s counterclaim and rejected Mr Soleymani’s defences that:

1. Nifty had no contractual relationship with auction participants that would allow it to recover the prices of the bids. The Judge accepted Nifty’s submission that that was “both uncommercial and self-serving” and therefore Nifty was to be regarded as Beeple’s agent.
2. The entire agreement clause in the 2020 Terms prevented the Auction Contract from arising. The Judge held that (a) the clause bites only on “prior discussions, agreements, and understandings”; (b) the entire agreement purports only to limit the scope of the agreement as relates “to your access to and use of the Site and Content”, which was unrelated to the Auction Contract; and (iii) the Auction Contract did not purport to be part of or incorporated into the Terms of Use, but rather was an entirely separate contract, collateral to the contract of sale with Beeple.
3. There had been no contract of sale with Beeple and therefore no Auction Contract, because NFTs were never “delivered” to purchasers because they were only ever held on Nifty’s wallet before and after the sale, with no change on the blockchain. Not only did the Judge comment that that “would lead to the absurd conclusion that no winner was liable to anyone”, he also stated it was a “bad point” as a transfer was effected by allocating NFTs held at Nifty’s address to the account of the purchaser in Nifty’s internal books, after which the user controlled the NFT and could transfer it to the address of its choosing.

Discussion

The judgment is the first which considers the novel interface between the longstanding law regarding auctions and its application to the sale of blockchain artwork, and highlights the importance of open-source information available on social media platforms such as X, Slack and Instagram as evidence in commercial disputes. Christie’s sale in 2021 of “EVERYDAYS: THE FIRST 5000 DAYS”, also by Beeple, sold for US$69,346,250 remains the highest price ever for an NFT and is the first time Christie’s accepted Ether cryptocurrency as payment. Although trading volumes are not what they were in 2021, the NFT market has gained significant attention due to a growing interest in the metaverse and “generative” A.I., which in turn will create opportunities for creators and trading platforms to monetise their digital creations and for investors to diversify their portfolios by investing in the unique assets.

The NFT marketplace is likely to continue to evolve, leading to more disputes by holders of NFTs over their rights and obligations when making purchases, whether by way of an auction or otherwise. Buyers may also claim to have been misled about the purchase, instigating claims for fraud or breach of contract (albeit blockchain verification should reduce ownership risks). Additionally, buyers will be concerned with market manipulation, e.g. “wash trading”, which predominately pumps up the perceived trading volumes of a cryptocurrency exchange, making it more attractive to potential traders.  Irrespective of the shape and size of the disputes, it is reassuring that the existing common law principles are able to accommodate the developments in the NFT market.