Those who regularly follow developments related to NFTs may have come across a heated debate on Twitter and other online platforms in January 2023 concerning the possibility of withdrawing from a distance contract.[1]In brief, the theoretical issue arose in cases where NFT purchasers had not been expressly informed before completing the purchase that they would lose or waive their right of withdrawal.Under Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights, hereinafter referred to as the “Directive”, this right has been transposed into the national legal systems of EU Member States. As a general rule, it allows consumers to withdraw from a distance contract within 14 days without giving any reason.Because the value of an NFT may change rapidly, an NFT provider could quickly find itself in a situation where it would be required to issue refunds to a large number of consumers who had changed their minds within the 14-day period and wanted to return an NFT that had fallen in value in exchange for the original purchase price.For anyone already familiar with NFTs, the immediate reaction would probably be that such an outcome is unfair and that, considering the nature of the transaction, the rules cannot reasonably operate in this way.However, the law is not always synonymous with fairness. The significant response generated by this debate demonstrates that the issue deserves closer examination.
The position in Slovenia
From the perspective of a Slovenian lawyer, the debate should, in our opinion, be resolved relatively quickly.The Slovenian Consumer Protection Act, published in the Official Gazette of the Republic of Slovenia, No. 130/22, and referred to as ZVPot-1, transposed the Directive into Slovenian law.Point 1 of Article 135 of the Act provides a clear exception to the right of withdrawal from a distance contract. A consumer does not have the right to withdraw from contracts concerning goods or services whose price depends on fluctuations in markets over which the trader has no control and which may occur during the withdrawal period.We believe that the purchase of an NFT falls within this exception. An NFT could undoubtedly be classified as a good whose price depends on market fluctuations over which the issuer or provider has no control.
Where did the problem arise?
The exceptions to the right of withdrawal have not been implemented in the same way in all national legal systems.The wording of the Directive is narrower than that of the Slovenian legislation.Article 16(b) of the Directive provides an exception for the supply of goods or services for which the price depends on fluctuations in the financial market that cannot be controlled by the trader and which may occur within the withdrawal period.Since the NFT market does not fall within the traditional definition of a financial market, this exception may not apply in jurisdictions that have transposed the wording of the Directive into national law more literally.In those jurisdictions, the argument that a consumer is nevertheless not entitled to withdraw from an NFT purchase must therefore be based on other provisions.One possible interpretation is to classify an NFT as digital content under Article 16(m) of the Directive. The consumer may lose the right of withdrawal in relation to such content, but only if the consumer has given prior express consent to the performance of the contract and has acknowledged that the commencement of performance results in the loss of the right of withdrawal.Another possible approach would be to interpret the purchase of an NFT as a financial service within the meaning of Article 2(12) of the Directive.That provision includes services of an investment nature within the definition of financial services. It would not necessarily be difficult to argue that the purchase of an NFT has an investment character.On that basis, it could be argued that the Directive establishing the right of withdrawal described above does not apply to such transactions at all.
Epilogue
A detailed legal and comparative-law analysis is beyond the scope of this article.It would nevertheless be interesting to examine why the Slovenian legislature transposed the relevant provision into national law in a somewhat different and broader form.A further question is whether, by narrowing the consumer’s right compared with the wording envisaged by the Directive, the Slovenian legislature acted in accordance with EU law.The issue demonstrates that the work of legislators is far from complete, both at the EU and national levels. New technologies are increasingly developing faster than the rules intended to govern them.This is a legally significant and professionally interesting topic, and we will continue to monitor its development closely.