Austria: Civil Law Aspects of Selling a Token – A Random Selection
If you follow our NFT Self-Experience, you already know what an NFT is and what it stands for. If not, you might want to know more. The following article deals with a first random choice in civil law, contractual aspects to be precise, which the authors say are worth considering before buying (or selling) your first NFT. However, given the novelty of the underlying technology, there is room for dissenting opinions.
1. Random subject 1: Which law applies?
If a potential NFT collector delves deep into the world of NFTs, they will hardly ever stick to their home territory. NFTs are generally traded on online platforms. Buyers and sellers are often from different countries. Payment may even be required in cryptocurrency rather than in a state currency. Thus, the agreement that is about to be concluded when purchasing a TVN is “international”. In a preliminary step, the applicable law should be assessed.
Private international law deals with the question of which national legal system is to be applied to an international dispute. The purpose of conflict of law rules is clear: in disputes with a “foreign connection”, a judge is not allowed to choose discretionary principles to decide that issue but must apply the laws of a specific legal system. To add to the complexity, a distinction must be made between the laws of obligations (Schundrecht) and property law (Sächenrecht) aspects of the case.
In Austria, this question is mainly answered either by the EU “Rome I” regulation or by the Austrian law on private international law (“IPRG”). In terms of the laws of obligations (Schundrecht), the application of these rules (most likely) leads to the law of the country where the seller resides (for purchase contracts) or the service provider (for service contracts).
In real estate law (Sächenrecht), the general catch-all1 of the IPRG applies. According to her, the “closest relation to the case” decides the question of which law is applicable. In practice, this assessment is naturally quite difficult, especially given the decentralized design of the blockchain.
The good news is that sometimes there is an easy way out, because instead of these complex rules, the parties are also free to agree on the applicability of a specific law. Such a choice of law clause is frequently included in the general conditions (GTC). However, this freedom to choose the law finds its limits in the field of consumer protection.2 If a consumer concludes the contract, any national provision of his country of residence favoring the consumer prevails over any “chosen” provision provided that the entrepreneur (i) carries out his professional or commercial activity in the state where the consumer has his residence usual; or (ii) directs such activity in any way to that State or to more than one State, including that State, and the contract falls within the scope of that activity.
In summary, a choice of law seems useful when it comes to NFT transfers. Before any transaction, it should be carefully checked whether and which T & Cs are concluded and what these T & Cs say about applicable law.
2. Random topic 2: Speaking of consumer protection…
2.1. … What agreement is reached?
In addition to the above, the specific provisions of the Austrian Distance Selling Act (Fern- und Auswärtsgeschäfte-Gesetz) could apply. The Distance Selling Act (and the underlying European Directive, Directive 2011/83 / EU) regulates certain aspects of distance, off-premises and on-site agreements between consumers and merchants. Distance selling seems obvious. In accordance with the legal opinion in force, the Distance Selling Act covers purchase contracts (Kaufverträge), exchange agreements (Tauschverträge) and service contracts (Dienstleistungsverträge). Thus, if a merchant sells an NFT to a consumer, the Distance Selling Act will apply whether the payment is made in cryptocurrency (which would indicate the conclusion of an exchange agreement) or in fiat currency ( which would indicate the conclusion of a purchase contract). One could even argue that the agreement reached is a service agreement, since the NFT is not really transferred but only the attribution of ownership is changed by adding a new bulk transaction to the blockchain. A service contract within the meaning of the Distance Selling Act is defined as “any contract other than a purchase contract under which the trader provides or undertakes to provide a service to the consumer and the consumer pays or undertakes to pay the price thereofThe questionable NFT vendor undertakes to provide the service to “trigger” the change of ownership in the blockchain. The consumer pays the price.
2.2. … How to manage the rights of withdrawal?
The law on distance selling aims to ensure the transparency of information, in particular pre-contractual information, which will be provided to consumers. When selling NFT, the seller is advised to recheck these transparency obligations. The Distance Selling Act also guarantees consumers’ right of withdrawal. This topic requires special attention, because once an NFT is sold, the attribution of the NFT to the buyer is recorded in the blockchain. Since the blockchain is designed to be irreversible, opt-out rights can pose some problems (although there are workaround options).
In general, under distance selling law, a consumer usually has the right to withdraw from a distance or off-premises contract without giving a reason within (at least) 14 days. However, the right of withdrawal has certain limits. With regard to an NFT purchase, two exceptions could potentially be invoked:
- there is no right of withdrawal under the Distance Selling Act with regard to “the supply of goods or services whose price depends on fluctuations in the financial market which cannot be controlled by the trader and which may occur within the withdrawal period“; and
- there is also no right of withdrawal under the Distance Selling Act with regard to “the supply of digital content which is not supplied on a tangible medium if the performance has started with the express prior consent of the consumer and his recognition that he thus loses his right of withdrawal“.
Let us look at the first exception: the consumer has no right of withdrawal in distance contracts for goods or services whose price depends on fluctuations in the financial market beyond the control of the trader and which may occur during the period of withdrawal. At first glance, this exception seems appropriate, as NFTs are traded and there is some market fluctuation beyond the control of the trader.
However, it is worth taking a closer look at the term “goods“before jumping to a conclusion: goods are not defined in distance selling law, but in the underlying EU directive as”any tangible personal property […]“with the exception of goods sold under execution or other legal measures. Water, gas and electricity are also considered as goods within the meaning of the directive if they are offered for sale in a volume limited or in a certain quantity.
Since a TVN is not a piece of furniture tangible thing, but rather a intangible thing, one could try to argue to exclude the consumer’s right of withdrawal by analogy to invest in gold, precious metals or energy. Alternatively, the aforementioned qualification of the agreement as a service agreement could be reconsidered. Regarding the agreement of the “volatile” NFT as a service contract would exclude the right of withdrawal of the consumer. This conclusion could be supported by teleological considerations. The aim and purpose of the specific provision of the Distance Selling Law (Article 18   Distance Selling Law, art. 16 [b] Directive 2011/83 / EU) aims to prevent the right of withdrawal from being misused as an instrument of speculation in the market.
The Distance Selling Act contains a second exception which could apply: according to Article 18 (1) (11), the consumer does not have the right to withdraw from distance contracts for “the supply of digital content which is not supplied on a tangible medium if the performance has started with the express prior consent of the consumer and his recognition that he thus loses his right of withdrawal.“Compared to exception n ° (i), this provision has considerable drawbacks for the seller, since it does not exclude the possibility of withdrawal ex ante, but only from the start of contract performance / delivery. In addition, the right of withdrawal is only excluded if the trader fulfills certain strict conditions: (i) express prior consent of the consumer; (ii) the consumer’s knowledge of the loss of the right of withdrawal; (iii) the trader has started the delivery before the expiry of the withdrawal period; and (iv) providing a copy or confirmation of the concluded agreement (in accordance with Article 7 (3) of the Distance Selling Law). Simply put, relying on this exception carries the risk that consumers may be able to assert their right of withdrawal provided the trader does not meet one of these requirements.
As these examples have shown, transactions must be analyzed in their “new” technological but “classic” legal contexts. This process of analysis is the lawyer’s playground.