In the landmark case brought against Chechetkin v. Payward Ltd and Others The High Court of England and Wales has confirmed that the existence of an arbitration clause in an agreement does not prevent the court from adjudicating a UK consumer’s petition to repay money lost through transactions on the defendants’ cryptocurrency exchange.
background details
The plaintiff, a lawyer based in England, set up a “professional” account on the cryptocurrency exchange for the defendants.
He initiated numerous transactions which allegedly resulted in losses of over £600,000. These transactions were bound by terms and conditions including an arbitration clause mandating dispute resolution in California in accordance with the JAMS Rules.
The plaintiff commenced legal proceedings in the English courts against the defendants to recover his alleged losses in February 2022, asserting that the transactions breached the Financial Services and Markets Act 2000.
In response, the defendants instigated arbitration proceedings and requested a declaration of no liability, challenging the court’s jurisdiction.
Before the session, the court issued a final ruling confirming its jurisdiction and acquitting the accused.
Jurisdiction claims
Claimant acknowledged the arbitration and exclusive jurisdiction clauses in favor of the California court incorporated into the terms and conditions of the exchange. However, he claimed their inadequacy citing Section 15b of the Civil Justice and Judgments Act 1982, which allows a consumer resident in the UK to litigate against the other party in the courts of the consumer’s home country.
Specifically, Section 15b of the Judiciary and Civil Judgments Act 1982 states:
(1) This section applies in connection with proceedings the subject matter of which is a matter of consumer contract where the consumer is resident in the United Kingdom.
(2) The consumer may bring a claim against the other party to the consumer contract-
(a) if the other party to the consumer contract is a resident of the United Kingdom, in the courts of the part of the United Kingdom where the other party to the consumer contract is a resident, or
(b) in the courts of the place where the consumer resides (regardless of the residence of the other party to the consumer contract).
(3) An action against a consumer by the other party to a consumer contract may only be brought in the courts of the part of the United Kingdom in which the consumer resides…”
Ultimately, if one of the parties is based outside the UK, these provisions can only be waived by post-dispute agreement.
Defendants challenged Plaintiff’s consumer case, citing his decade-long experience as a banking attorney, significant business history, and use of a “professional” account, which pushed his trading limits.
They further argued that Section 101 of the Arbitration Act 1996 obliges English courts to recognize New York Convention decisions, denying the court jurisdiction over the dispute.
Specifically, Section 101 of the Arbitration Act 1996 states:
(1) A decision of the New York Convention shall be recognized as binding upon the persons between whom it was passed, and may accordingly be relied upon by such persons by defense, set-off or otherwise in any legal proceeding in England and Wales or Northern Ireland.
(2) An arbitral award made under the New York Convention may, with the permission of the Court, be enforced in the same manner as an award or order made by the Court for the same purpose.
For the meaning of “court” see Section 105.
(3) If permission to do so is granted, judgment may be made by virtue of the arbitral award.”
Supreme Court ruling
The court denied both arguments put forward by the two defendants.
Argument 1: The plaintiff qualifies as a consumer under jurisdictional law and civil judgments
The court established that the individual’s development, experience or knowledge does not affect the consumer’s situation under the Civil Judicial Law and Judgments.
The account opening documents revealed that the plaintiff presented himself only as a lawyer. The ‘pro’ account only refers to the enhanced trading limits, and does not indicate that the claimant was a professional investor.
The court maintained an objective perspective on whether the contract served a purpose beyond the individual’s trade or profession, making the plaintiff’s self-representation irrelevant.
Therefore, it is classified as consumer.
Argument 2: Section 101 of the Arbitration Act does not oblige the court to confiscate jurisdiction
The court stated that the arbitration clause or award did not eliminate the jurisdiction of the court.
The Arbitration Law regulates the procedures for disputes governed by arbitration agreements. For example, if a court stays the proceedings in accordance with the arbitration law, it does not relinquish jurisdiction but enables the parties to fulfill their contractual obligations. The award recognized may have a significant impact on the outcome of legal proceedings as it may be used as a defense or set-off by one of the parties. However, the court is not deprived of the power to adjudicate the case.
The Court further noted that Section 101 of the Arbitration Act 1996 did not require unconditional recognition of NYC awards. English courts can refuse recognition and enforcement based on Section 103 of the Arbitration Act 1996, an intention indicated by the Claimant.
Section 103 of the Arbitration Act 1996 states:
“(1) Recognition or enforcement of a New York Convention arbitration award may only be refused in the following cases.
(2) Recognition or enforcement of an arbitral award may be refused if the person against whom it is invoked proves-
(a) that one of the parties to the arbitration agreement (under the law applicable to it) had a lack of capacity;
(b) that the arbitration agreement was not valid under the law to which the parties have subjected it or, failing any indication thereof, under the law of the country in which the arbitral award was made;
(c) he has not been properly notified of the appointment of the arbitrator or of the arbitration proceedings or is otherwise unable to present his case;
(d) the award deals with a difference that was not contemplated or that does not fall within the terms of submission to arbitration or contains decisions on matters outside the scope of submission to arbitration (but see subsection (4));
(e) that the composition of the arbitral tribunal or the conduct of the arbitration was not in accordance with the agreement of the parties or, failing such agreement, with the law of the country in which the arbitration took place;
(f) That the decision has not yet become binding on the parties, or has been canceled or suspended by the competent authority in the country in which it was issued, or by virtue of its law.
(3) Recognition or enforcement of the arbitral award may also be refused if the award concerns a matter that is not capable of settlement by arbitration, or if recognition or enforcement of the arbitral award would be contrary to public policy.
(4) An arbitral award containing decisions on matters not submitted to arbitration may be recognized or enforced to the extent that it contains decisions on matters submitted to arbitration that can be separated from those on matters not so submitted.
(5) Where an application for annulment or suspension of an arbitral award is made to the competent authority as mentioned in subsection (2)(f), the court before which reliance is sought may, if it deems it appropriate, defer the decision on the recognition or enforcement of an award .
It may also, at the request of the party claiming recognition or enforcement of the arbitral award, order the other party to provide appropriate security.”
the main ideas
Although arbitration has appealed due to confidentiality, flexibility, and global enforcement benefits, companies, especially cryptocurrency exchanges, must consider the complexities involved in arbitrating a contract dispute with a consumer in England.
They should be aware of the potential risk that, despite the arbitration clause or ongoing/ended arbitration proceedings, English consumers can still bring claims in English courts.
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