Crypto arbitration clause: English High Court finds in favour of consumer
The recent High Court judgment in Chechetkin v Payward LTD & Others has provided an insight into the court’s approach when considering arbitration awards and consumer contracts. The court held that it had jurisdiction to consider a consumer’s claim for repayment of sums lost trading cryptocurrencies, rejecting the defendant’s arguments that an arbitration clause should prevent the claim from proceeding.
The consumer claimant brought a claim in the High Court in relation to the trading of digital currencies on a digital currency exchange and trading platform provided by the defendants, Payward (doing business as Kraken). He claimed that the defendants various trades involved breaches of the Financial Services and Markets Act 2000 and sought repayment of sums of more than £600,000.
The defendants applied for a declaration that the court has no jurisdiction to hear the claim and that it be dismissed, relying on an arbitration clause in the terms and conditions which they said governed the claimant’s trading on the platform. This clause stated that the parties agreed to arbitrate any disputes relating to use of the platform in San Francisco under the JAMS Rules.
After the claimant issued the underlying claim, in the High Court, the defendants began arbitration proceedings in San Francisco under the JAMS Rules. After filing their application challenging jurisdiction in the High Court, but before the court heard the application, the arbitrator confirmed her jurisdiction and issued a final award concluding that the claimant’s claims fail and that the defendants are under no liability to him. The final award also stated that the claimant is prohibited from filing or prosecuting a claim against the defendants in any court as he was bound by the arbitration clause. The defendants then began enforcement proceedings in the UK in respect of the final award.
In the English High Court proceedings, the defendants argued that the arbitration clause in their terms and conditions was binding, preventing the claimant from bringing proceedings in the High Court. They argued that the jurisdiction challenge application should be adjourned pending determination of the enforcement proceedings. Additionally, due to an overlap on the issues raised in the jurisdiction challenge application and the enforcement proceedings, the defendants argued it would be sensible for the arguments to be heard at the enforcement hearing in the interests of case management.
The claimant had agreed that he would not take any further steps in these High Court proceedings until the enforcement proceedings had been determined, but argued that the jurisdiction challenge application should proceed to be determined. This was because, among other things, the claimant considered the issues in the separate proceedings were not the same. In particular, the claimant argued that as a consumer his claim falls within s15B of the Civil Jurisdiction and Judgments Act 1982, as it relates to a consumer contract in the UK. He argued that the English court accordingly does therefore have jurisdiction.
In response, the defendants argued, among other things, that continuing with the jurisdiction challenge application would be a breach of the final arbitration award, which states the claimant cannot prosecute his claim in court. The defendants also argued that, as the final award was a New York Convention award concluding that the arbitral tribunal has jurisdiction, there is a mandatory requirement of recognition meaning the English court cannot take jurisdiction. In response, the claimant argued that the award only became final 14 days after publication and was therefore not final on the date of the jurisdiction challenge application hearing.
Additionally, the defendants argued that the claim does not fall within s15B of the Civil Jurisdiction and Judgments Act 1982. They argued that the claimant was not a consumer as he was a banking lawyer with eleven years of experience, had traded significant amounts of money over several years and had opened a ‘pro account’ on the trading platform.
The court agreed with the claimant that resisting the jurisdiction challenge application did not amount to prosecuting a claim, and that the issues raised between the separate proceedings were not the same. It therefore decided against adjourning the jurisdiction challenge application.
The court did not consider the relevant award to be final for the purposes of enforcement or recognition, as the 14 day period after publication had not yet ended. It concluded that the existence of a New York Convention award, including one which states that the arbitrator has jurisdiction, does not in general deprive the English courts of jurisdiction. In discussing this point, the court considered that the more natural conclusion is that the English courts could have jurisdiction, but that the New York Convention award may have a critical effect on the outcome of the legal proceedings.
Finally, the court found that the claimant was a consumer, as the purpose of the contract with the defendants was for dealings with digital assets, which was outside of his profession.
The jurisdiction challenge application was therefore dismissed.
This judgment is important to UK consumers and to companies operating trading platforms, with the English courts clearly taking a robust pro-consumer approach in confirming that consumer claims of this kind can be heard in the domestic courts.
The outcome of this judgment is similar to Soleymani v Nifty Gateway LLC, a recent interim decision covered in an earlier Perspective. Both cases relate to the trading of cryptocurrency and an arbitration clause in the trading platforms’ terms and conditions, feature a JAMS arbitration, English High Court litigation and a jurisdiction challenge application, and lead to a consumer-friendly judgment by the court.
Given the upswing in cryptocurrency trading, this area is ripe for similar cases and will be watched with interest.