(6 min read)
Discover a rare legal case where the English Commercial Court refuses to enforce a foreign international arbitration award, citing public policy concerns. This unusual decision sheds light on the importance of the governing law in international arbitration cryptocurrency disputes and the importance of considering consumer legislation when drafting dispute resolution provisions. The case involves a UK-based lawyer who lost over £600,000 trading on a crypto platform and sought redress under UK consumer legislation. This article examines the court's reasoning, the impact on arbitration agreements, and the implications for businesses operating in the crypto space. It's a must-read for anyone interested in cryptocurrency, consumer contracts, and the evolving landscape of international arbitration.
In a rare decision, the English Commercial Court has refused to enforce an international arbitration award on the grounds that to do so would be contrary to public policy. The decision reinforces the ability to submit cryptocurrency disputes to arbitration, whilst also reinforcing the ability to submit disputes arising under business-to-consumer contracts to arbitration.
However, the decision stresses the importance of considering where parties are based and operating when considering disputes relying on consumer legislation which is prevalent in business-to-consumer contracts, including those in the cryptocurrency space. In the judgment, the Court determined that enforcement of the award would be contrary to public policy when considering the specifics of this dispute. In particular, enforcement would be contrary to public policy because of the application of UK consumer legislation and the Financial Services and Markets Act 2000 ("FSMA") which requires the issues in in dispute to be determined by English law, as opposed to by a foreign law.
Background
The dispute was between Mr Chechetkin and the Payward group, which operates the Kraken crypto asset trading platform. Payward received a favourable arbitral award in California which it sought to enforce in England as the jurisdiction in which Mr Chechetkin holds assets.
Mr Chechetkin, a UK-based lawyer, traded in a personal capacity on Payward’s Kraken cryptocurrency trading exchange in 2020, losing more than £600,000. The terms of service ("Terms of Service") in Payward's agreement were governed by California law and contained an arbitration agreement, which provided for disputes to be determined by a sole arbitrator, for the arbitration to be seated in San Francisco and for the application of Judicial Arbitration and Mediation Service Rules ("JAMS"). JAMS is generally a popular choice in US based contracts and is usually accompanied by a US seat. The Terms of Service further expressly set out that effect would not be given to any conflict of laws principles that may provide for the application of the law of another jurisdiction.
The arbitration was commenced by Payward in 2022, and Mr Chechetkin responded with a jurisdictional objection, challenging the arbitrability of the dispute. Mr Chechetkin argued that Payward had violated provisions under FSMA by conducting activities for it was not authorised to pursue. The Tribunal found that it had jurisdiction, and that the arbitration agreement was enforceable under California law (being the seat of the arbitration). The Tribunal also found that Mr Chechetkin could not rely on English legislation. The Tribunal further found in favour of Payward in its final award.
In response, Mr Chechetkin commenced a claim in the English courts, arguing that Payward had breached FSMA, with the Court dismissing Payward’s jurisdictional objection to those proceedings.
Payward sought enforcement of the arbitral award against Mr Chechetkin in England. Mr Chechetkin resisted enforcement on the basis that it would be contrary to public policy in accordance with the Court's discretion under the Arbitration Act to refuse recognition or enforcement of an arbitration award [1]. He argued that enforcement would be contrary to public policy based on both the Consumer Rights Act 2015 ("CRA") and FSMA.
Decision
In response to Mr Chechetkin's position, the High Court resolved several points.
Firstly, when considering whether Mr Chechetkin was a consumer under the CRA, the Court confirmed that he was. Mr Chechetkin's main source of income was as a lawyer and therefore he was acting in his capacity as a consumer on his own behalf and would not be reselling. Further, the evidence showed that Payward considered Mr Chechetkin to be a consumer.
Secondly, the Court held that it was not bound by the sole arbitrator's determinations on the basis that when acting as an enforcement court, the English Court is not necessarily bound by a tribunal's decision on its own jurisdiction (see Dallah Co v Ministry of Religious Affairs of Pakistan [2011] AC 763). The Court considered that Mr Chechetkin's claims fells under the Civil Jurisdiction and Judgments Act because the proceedings related to a business-to-consumer contract where the consumer was domiciled in the UK, and as such the mandatory arbitration requirements and exclusive jurisdiction clauses in the Terms of Service could be overruled by the Court.
Thirdly, the Court considered that both the CRA and FSMA were expressions of public policy because: (i) the CRA is the UK's enactment of an EU directive which had already been established as a matter of public policy; and (ii) FSMA is a UK based statute with regulatory objectives,
Fourthly, enforcement would be contrary to public policy under the CRA and FSMA because of specifications within the CRA which set out that where a consumer contract is closely connected to the UK, the CRA must apply (irrespective of any governing law provision agreed between the parties). This was necessarily satisfied in this instance where Mr Chechetkin is a UK national living in the UK and where Payward is incorporated in the UK. Further, the relevant services were paid for in sterling and to an English bank account. This was enough to make the award unenforceable. The Court concluded that whilst a reasonable consumer in Mr Chechetkin's situation might have agreed to English seated arbitration, it was highly unlikely that a reasonable consumer in the UK would have agreed to California seated arbitration governed by JAMS and subject to the Federal Arbitration Act. In relation to FSMA, the Court held that not allowing Mr Chechetkin to bring his claim under FSMA would be contrary to the public policy considerations within FSMA.
Summary
This decision is an unusual one for the English courts which adopt a pro-arbitration stance and generally prefer to defer to the parties' agreement. This decision however highlights the importance of statutory provisions, in particular in the context of business-to-consumer contracts, and the need to consider the relevant jurisdiction(s) when drafting an arbitration agreement.
A 'one-size-fits-all' approach does not necessarily work in the context of consumer contracts and care should be given to the parties to these contracts and the jurisdictions in which they operate. Businesses will need to bear in mind that an arbitral award may not result in final resolution of the matter and that they may find themselves also facing separate court claims in a different jurisdiction.
Furthermore, given the nature of business-to-consumer contracts, it is unlikely that the consumer will be able to negotiate such clauses and therefore, it is incumbent upon the business to consider the issue. Businesses may need to consider how best to address this problem, for example by having several different arbitration agreement possibilities depending on the jurisdiction in which the consumer is based.
Footnotes
[1] Section 103(3) of the Arbitration Act provides that the Court may refuse enforcement if the award is “in respect of a matter which is not capable of settlement by arbitration, or if it would be contrary to public policy to recognise or enforce the award".
