English High Court Granted Jurisdiction in Cryptocurrency Consumer Claim Despite Existence of Arbitration Agreement

In the landmark case of Chechetkin v. Payward Ltd and Others, the High Court of England and Wales asserted that the presence of an arbitration clause within an agreement does not preclude the court from adjudicating on a UK consumer’s plea for repayment of funds lost via transactions on the defendants’ cryptocurrency exchange.

Background Details

The plaintiff, an England-based attorney, had established a ‘pro’ account on the defendants’ cryptocurrency exchange platform.

He initiated multiple transactions that purportedly resulted in over £600,000 in losses. These transactions were bound by terms and conditions inclusive of an arbitration clause mandating dispute resolution in California as per the JAMS rules.

The plaintiff initiated legal proceedings in English courts against the defendants to reclaim his alleged losses in February 2022, asserting that the transactions violated the Financial Services and Markets Act 2000.

In response, the defendants instigated arbitration proceedings and requested a non-liability declaration, challenging the court’s jurisdiction.

Before the hearing, the arbitrator delivered a final verdict confirming her jurisdiction and exonerating the defendants.

Contentions Regarding Jurisdiction

The plaintiff acknowledged the arbitration and exclusive jurisdiction clauses in favor of the California court embedded in the exchange’s terms and conditions. However, he contended their irrelevance citing Section 15B of the Civil Jurisdiction and Judgments Act 1982, which allows a UK-domiciled consumer to litigate against the other party in the consumer’s domicile courts.

Specifically, Section 15B of the Civil Jurisdiction and Judgments Act 1982 provides as follows:

“(1) This section applies in relation to proceedings whose subject-matter is a matter relating to a consumer contract where the consumer is domiciled in the United Kingdom.

(2) The consumer may bring proceedings against the other party to the consumer contract—

(a)where the other party to the consumer contract is domiciled in the United Kingdom, in the courts of the part of the United Kingdom in which the other party to the consumer contract is domiciled, or

(b)in the courts for the place where the consumer is domiciled (regardless of the domicile of the other party to the consumer contract).

(3) Proceedings may be brought against the consumer by the other party to the consumer contract only in the courts of the part of the United Kingdom in which the consumer is domiciled …”

Ultimately, if one party resides outside the UK, these provisions can be waived only by a post-dispute agreement.

The defendants contested the plaintiff’s consumer status, stating his decade-long experience as a banking lawyer, substantial trading history, and usage of a ‘pro’ account, which augmented his trading limits.

They further argued that the Arbitration Act 1996’s Section 101 obligates English courts to recognize New York Convention awards, thus denying court jurisdiction over the dispute.

Specifically, Section 101 of the Arbitration Act 1996 provides as follows:

“(1) A New York Convention award shall be recognised as binding on the persons as between whom it was made, and may accordingly be relied on by those persons by way of defence, set-off or otherwise in any legal proceedings in England and Wales or Northern Ireland.

(2) A New York Convention award may, by leave of the court, be enforced in the same manner as a judgment or order of the court to the same effect.

As to the meaning of “the court” see section 105.

(3) Where leave is so given, judgment may be entered in terms of the award.”

High Court’s Verdict

The court negated both arguments proposed by the defendants.

Argument 1: Plaintiff Qualifies as a Consumer under the Civil Jurisdiction and Judgments Act

The court established that an individual’s sophistication, expertise, or knowledge does not influence their consumer status under the Civil Jurisdiction and Judgments Act.

The account opening documents revealed that the plaintiff presented himself solely as an attorney. The ‘pro’ account referred merely to enhanced trading limits, not implying that the plaintiff 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, he was classified as a consumer.

Argument 2: Section 101 of the Arbitration Act Doesn’t Compel the Court to Forfeit Jurisdiction

The court stated that an arbitration clause or verdict does not eliminate the court’s jurisdiction.

The Arbitration Act regulates the procedures for disputes governed by arbitration agreements. For instance, if a court halts proceedings per the Arbitration Act, it doesn’t relinquish jurisdiction but enables parties to fulfill their contractual obligations. An acknowledged award may significantly impact the legal proceedings’ outcome as it can be utilized as a defense or set off by a party. Nevertheless, it doesn’t deprive the court’s authority to adjudicate the case.

The court further noted that Section 101 of the Arbitration Act 1996 doesn’t necessitate the unconditional recognition of New York Convention awards. English courts can refuse recognition and enforcement based on Section 103 of the Arbitration Act 1996, an intention indicated by the plaintiff.

Section 103 of the Arbitration Act 1996 provides as follows:

“(1) Recognition or enforcement of a New York Convention award shall not be refused except in the following cases.

(2) Recognition or enforcement of the award may be refused if the person against whom it is invoked proves—

(a) that a party to the arbitration agreement was (under the law applicable to him) under some incapacity;

(b) that the arbitration agreement was not valid under the law to which the parties subjected it or, failing any indication thereon, under the law of the country where the award was made;

(c) that he was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case;

(d) that the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration or contains decisions on matters beyond the scope of the submission to arbitration (but see subsection (4));

(e) that the composition of the arbitral tribunal or the arbitral procedure 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 award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, it was made.

(3) Recognition or enforcement of the award may also be refused 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.

(4) An award which contains decisions on matters not submitted to arbitration may be recognised or enforced to the extent that it contains decisions on matters submitted to arbitration which can be separated from those on matters not so submitted.

(5) Where an application for the setting aside or suspension of the award has been made to such a competent authority as is mentioned in subsection (2)(f), the court before which the award is sought to be relied upon may, if it considers it proper, adjourn the decision on the recognition or enforcement of the award.

It may also on the application of the party claiming recognition or enforcement of the award order the other party to give suitable security.”

Key Insights

Despite arbitration’s appeal due to its confidentiality, flexibility, and global enforcement benefits, companies, especially cryptocurrency exchanges, must consider the intricacies involved in arbitrating a contract dispute with a consumer in England.

They must be cognizant of the potential risk that, notwithstanding an arbitration clause or ongoing/concluded arbitration proceedings, English consumers can still file claims in English courts.