UK: High Court Rules Arbitral Awards Don't Deprive English Court Of Jurisdiction In Crypto Consumer Claim

In Chechetkin v. Payward Ltd and Others¹, the High Court of England and Wales ruled that the existence of an arbitration clause in an agreement between the parties should not prevent the court from hearing the UK consumer's claim for repayment of sums lost through his trading on the defendants' cryptocurrency exchange.

Background

The claimant, a lawyer domiciled in England, had opened a 'pro' account on the defendants' cryptocurrency exchange. He executed several trades that allegedly resulted in losses of more than £600,000. These trades were subject to terms and conditions that included an arbitration clause requiring any dispute to be arbitrated in California under the JAMS rules. In February 2022, the claimant issued proceedings in the English courts against the defendants to recover his alleged losses. The basis for his claim was that the various trades and transactions between the parties involved breaches of the Financial Services and Markets Act 2000. The defendants, in the meantime, commenced arbitration proceedings seeking a declaration of non-liability and issued an application in the High Court challenging the court's jurisdiction. Prior to the hearing of that application, the arbitrator had made a final award that affirmed her jurisdiction and found the defendants not liable.

Parties' submissions on jurisdiction

The claimant accepted that the terms and conditions of the cryptocurrency exchange contained an arbitration clause, as well as an exclusive jurisdiction clause in favour of the California court. However, he argued that this was irrelevant, as the provisions of Section 15B of the Civil Jurisdiction and Judgments Act 1982 applied. Section 15B provides that in proceedings relating to a consumer contract where the consumer is domiciled in the UK, that consumer may bring proceedings against the other party in the courts where the consumer is domiciled. Further, where one of the parties is domiciled outside the UK, these provisions may be departed from only by an agreement between the parties which is entered into after the dispute has arisen. The defendant argued that the claimant was not a consumer within the meaning of the Civil Jurisdiction and Judgments Act on the basis that he had more than a decade of experience as a banking lawyer, he had traded substantial amounts for several years, and he had opened a 'pro' account, which increased his trading limits. The defendants further argued that Section 101 of the Arbitration Act 1996 requires the English courts to recognise New York Convention awards. Accordingly, as an award had been made in the arbitration that concluded the tribunal had jurisdiction in relation to the dispute, the court was required to recognise that award and was therefore deprived of any jurisdiction in relation to the dispute.

High Court's decision

The court dismissed both arguments put forward by the defendants.

Argument 1: Claimant was a consumer within meaning of Civil Jurisdiction and Judgments Act

The sophistication, expertise or knowledge of a person is irrelevant for defining a consumer under the Civil Jurisdiction and Judgments Act. The account opening documents showed that the claimant had only held himself out to be a lawyer. The reference to a pro account simply meant there were higher trading limits. It did not mean that the claimant was an investment professional. In any event, the court is required to apply an objective approach to the question of whether a contract was made for a purpose that was outside the relevant person's trade or profession. Therefore, it did not matter what the claimant represented about himself. As such, he was considered a consumer.

Argument 2: Section 101 of Arbitration Act doesn't obligate court to decline jurisdiction

An arbitration clause (or even an award) does not deprive the court of jurisdiction. The Arbitration Act is a code regulating proceedings for disputes covered by arbitration agreements. Where, for example, a court stays proceedings in accordance with the provisions of the Arbitration Act, this does not remove the court's jurisdiction over the existing proceedings - it enables the parties to honour their contractual commitments. A recognised award may be important (or even determinative) to the eventual outcome of legal proceedings, as it may be relied upon by a party by way of defence or set off. However, its use in such a manner does not deprive the court of jurisdiction to hear the case. Finally, the court noted that Section 101 of the Arbitration Act does not require mandatory recognition of New York Convention awards in all circumstances. English courts may refuse recognition and enforcement on the grounds set out in Section 103 of the Arbitration Act - and the claimant had indicated an intention to do so.

Takeaway

The confidentiality, flexibility and international enforcement advantages of arbitration make it an attractive option for companies with international clients. Accordingly, cryptocurrency exchanges often include arbitration clauses in their standard terms and conditions. However, any company doing so must recognise the complexities that exist when attempting to arbitrate a dispute arising out of a contract with a consumer in England. In particular, companies need to be aware of the risk that, regardless of the existence of an arbitration clause or ongoing/concluded arbitral proceedings, English consumers may nevertheless pursue claims in the English courts.

Footnote

1.[2022] EWHC 3057 (Ch)

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