On 14 July 2023, the English High Court denied the enforcement of an arbitral award (“Final Award”) rendered under the Judicial Arbitration and Mediation Services (“JAMS”) Arbitration Rules in San Francisco, California. The presiding judge, Mr Justice Bright, held that the Final Award was contrary to UK public policy as outlined under the Consumer Rights Act 2015 (“CRA”) and the Financial Services and Markets Act 2000 (“FSMA”).
Factual Background
The underlying dispute was between three Payward entities (“Payward”), including Payward Ltd incorporated in England, and the Defendant Mr Chechetkin. Payward operates “Kraken”, a global online cryptoasset exchange and trading platform. Mr Chechetkin is British and worked as an in-house counsel in England.
In March 2017, Mr Chechetkin opened an online account on Kraken, contracting with Payward Ltd, the relevant Payward entity in UK. When registering onto the platform, Mr Chechetkin checked a box to affirm his acceptance of the Payward Terms of Service (“Payward Terms”), which stated in clause 23 that any disputes would be subject to arbitration under JAMS Rules, in San Francisco, California. Mr Chechetkin traded on the platform until closing his account in October 2020. The dispute at hand concerns £613,000 which Mr Chechetkin deposited into his Kraken trading account between 15 March 2020 and 6 June 2020, as Mr Chechetkin stated he had lost £608,534.
Mr Chechetkin’s FSMA Claim
In 2022, Mr Chechetkin brought a claim against Payward Ltd before the English High Court. He argued that Payward’s activities breached the General Prohibition under FSMA. The General Prohibition provides that no person may carry on a regulated activity in the United Kingdom, or purport to do so, unless he is an authorised person or an exempt person. Mr Chechetkin alleged that Payward Ltd’s activities were regulated activities yet they did not have the requisite authorisation to carry out such activities (the “FSMA Claim”).
Payward Ltd relied on the arbitration agreement in clause 23 of the Payward Terms and attempted to halt Mr Chechetkin’s FSMA Claim by way of an injunction pursuant to s. 44(2)(e) Arbitration Act 1996 and s. 37(1) Senior Court Act 1981. On 25 October 2022, Miles J heard the injunction application and considered whether clause 23 of the Payward Terms should prevail or if the English High Court had jurisdiction over the FSMA Claim since it related to a consumer domiciled in the UK. Miles J dismissed the injunction application on the basis that Mr Chechetkin was a consumer and he was not bound by the JAMS arbitration agreement as per clause 23 of the Payward Terms. Mr Chechetkin could therefore continue his FSMA Claim.
JAMS Arbitration Proceedings
In response to Mr Chechetkin’s FSMA Claim, Payward filed for arbitration under the JAMS Rules. Payward requested that the sole arbitrator enforce the Payward Terms.
Mr Chechetkin challenged the sole arbitrator’s jurisdiction submitting that the Payward Terms were in breach of FSMA and clause 23 could not be upheld under English law.
The sole arbitrator ruled in Payward’s favour setting out that Mr Chechetkin breached the Payward Terms by issuing a claim in the English courts, however, Mr Chechetkin should be treated as a consumer for the purposes of the arbitration. This meant that as per the JAMS Consumer Standards, Payward was unable to claim for its legal fees and costs for the arbitration and for the litigation in the UK.
Enforcement Proceedings in the English courts
Payward sought to enforce their Final Award in the English courts. Mr Chechetkin argued that the English High Court shall refuse recognition and enforcement because the Final Award violated English public policy.
The Decision of the English High Court
Pursuant to section 103(3) Arbitration Act 1996, the recognition and enforcement of an award may be refused if it is contrary to public policy to enforce the award. Since Mr Chechetkin was relying on the CRA and FSMA, Mr Justice Bright turned to consider each legislation in turn.
Under the CRA, was Mr Chechetkin a consumer?
Mr Justice Bright held that Mr Chechetkin was a consumer for the purposes of section 2(3) CRA as well as in its natural meaning. Given Mr Chechetkin’s employment as a lawyer, the fact that he stated his source of income was his employment when registering onto Kraken and he did not provide details of his experience of cryptocurrency trading when asked on the Kraken registration, he was therefore determined as a customer.
Mr Justice Bright refused Payward’s argument that Mr Chechetkin was not a consumer as he used his account frequently and his sums traded were “reasonably large”. Mr Justice Bright compared Mr Chechetkin with the claimants in Ang v Reliantco Investments Ltd and Weco Project Aps v Loro Piana ,[1] where Mr Chechetkin’s investments would have looked smaller. For the above mentioned reasons, Mr Justice Bright held that Mr Chechetkin was a consumer.
Were the CRA and FSMA expressions of UK / English public policy?
Mr Justice Bright held that the CRA was an expression of UK/English public policy as a result of originating from the Unfair Contract Terms Act 1997 (“UTCCD”). The interplay between s. 74(1) CRA and Article 6(2) UTCCD where the consumer’s right to choice of law is protected led Mr Justice Bright to state that “there can be no dispute that UTCCD represents public policy”. His reasoning was also supported by CJEU case law citing Asturcom Telecommunications SL.[2]
With regards to FSMA, Mr Justice Bright found that this legislation expressed English public policy as FSMA itself outlined that it makes provision for the regulation of financial services which are expressly identified as public policy by Parliament. Mr Justice Bright also noted the key provisions of the case, namely ss.19, 23 and 26 were also integral to the regulatory objectives of FSMA.
Would enforcement of Final Award be contrary to public policy?
In light of the above arguments, Mr Justice Bright held that enforcement of the Final Award would be contrary to public policy by violating the CRA and FSMA. Furthermore, should Mr Justice Bright have enforced the Final Award, that would have resulted in halting the FSMA claim from progressing which in and of itself would be contrary to public policy, specifically in relation to ss. 19 and 26 FSMA.
The case is one of the rare examples where English courts refuse recognition and enforcement of foreign arbitral awards on public policy grounds.
[1] Ang v Reliantco Investments Ltd [2019] EWHC 879 (Comm) and Weco Project Aps v Loro Piana [2020] EWHC 2150 (Comm).
[2] Asturcom Telecommunications SL [2010] 1 CMLR 29 and Mostazo Claro [2007] 1 CMLR 22.
