Last month, the High Court concluded that to enforce an arbitral award obtained by a major crypto exchange would be contrary to public policy under section 103(3) of the Arbitration Act 1996. This unusual invocation of the public policy exception arises as part of a recent line of cases in which crypto traders have generally been considered consumers who are entitled to consumer protection rights.

Effect on international trading platforms, users and consumers

International trading platforms like the Payward group (whose business is the operation of the Kraken crypto exchange) and other types of international trading platform will no doubt wish to reflect on the High Court’s decision. Many such platforms will need to contend with the issue of their users being consumers under different legal standards in different jurisdictions, and should take this into account when including dispute resolution clauses in their standard terms and conditions, especially given the prevalence of arbitration clauses like the one in this case.

Bright J’s decision is a further basis for the contention that crypto traders and potentially users of other types of international trading platforms can be considered consumers and so will benefit from consumer rights protections such as those under the Consumer Rights Act 2015 (CRA 2015).

This case provides potential guidance for such platforms to avoid future jurisdiction challenges should they be able to find a way to incorporate resolution of consumer protection issues and other legal provisions under legislation like the Financial Services and Markets Act 2000 (FSMA) within their preferred dispute resolution mechanism. Any mitigation strategy will, however, need to be realistic, given the challenges of providing for different consumer protection laws and other jurisdiction-specific claims with a global clientele.

The decision is of note to users such as Mr Chechetkin and their lawyers given that the arbitral award and the arbitration clause in the contract have not prevented Mr Chechtekin from pursuing his claim in the English courts. Arbitral proceedings in a foreign jurisdiction may, therefore, not always be the only recourse for consumers, notwithstanding the pro-arbitration attitude of the English Court.

Ultimately, notwithstanding the highly respected arbitral jurisdiction and given the UK-specific nature of some of Mr Chechetkin’s claims, Bright J stated (at paragraph §59(iv)) that he did not see how “claims under English statute could sensibly have been advanced in the JAMS arbitration” even though the arbitrator had clearly acknowledged that Mr Chechetkin was a consumer albeit under a different definition. Others resisting enforcement of arbitral awards will wish to bear this in mind.

What happened

Mr Chechetkin is a Russian-qualified lawyer based in the UK who during the relevant period was employed as full-time in-house legal counsel. In March 2017, he opened an online crypto trading account via the Kraken website operated by Payward. In doing so, he filled out a standard online form in which he gave his occupation and indicated that the source of his wealth was his employer. He left the box in relation to “Crypto Trading Experience” blank. While he opted for a “Pro” account, this was because this type of account offered higher withdrawal limits and not because he was a professional trader.

Mr Chechetkin’s contract with Payward Limited, the UK entity within the Payward group, was subject to Payward’s standard terms which contain an arbitration clause requiring any disputes to be arbitrated in California under JAMS rules. Mr Chechetkin ticked the box purporting to confirm that he had read and agreed to Payward’s terms.

Mr Chechetkin was relatively active on his Kraken account between 2017 and March 2020, however, during the pandemic, he started trading more than usual. The underlying dispute in this case concerns deposits made by Mr Chechetkin in 2020 to the tune of over £600,000; he claims that he ended up losing £608,534. Mr Chechetkin ultimately issued proceedings in the English courts in February 2022 asserting that Payward was in breach of the General Prohibition under section 19 of the FSMA and that his agreements with Payward are unenforceable.

In June 2022, Payward issued a jurisdiction challenge in England in favour of the arbitration in California. This challenge failed in October 2022.

In October 2022, Payward obtained a final arbitral award in California, which it sought to enforce against Mr Chechetkin in England, the effect of which would have been to end Mr Chechetkin’s claim. This attempt to enforce the award is the subject of Bright J’s decision.

Key points from the decision

The High Court agreed with Mr Chechetkin that he was a ‘consumer’ under the CRA 2015, with Bright J making it clear that he did not find this point difficult. Notwithstanding an exceptional and successful application to cross-examine a witness in arbitral enforcement proceedings, having heard from Mr Chechetkin the judge found that he was indeed a consumer. He was, of course, employed as a lawyer. His crypto trading, even when undertaken at high volumes, with money from third parties and whether or not declared as income to HM Revenue & Customs, was not his trade, craft or profession. Much of the indicators relied on to challenge this in any event post dated the concluding of the contract.

Bright J explained that in asking the High Court to enforce the final award, Payward was effectively asking him not to consider whether the arbitration clause in its terms and conditions was fair within the meaning of the CRA 2015. This is notwithstanding that the English Court is required to do so whether or not the parties have raised the fairness of a clause as an issue. Bright J noted that this obligation reinforces the importance of consumer protection as a matter of public policy. Given that importance, the High Court refused to enforce Payward’s arbitral award and thereby deny Mr Chechetkin a chance to enforce his consumer rights.

Enforcement of the award was also considered to be contrary to the public policy enshrined elsewhere in the CRA 2015: where a consumer contract has a close connection with the UK, the consumer rights issues encompassed by the CRA 2015 should be dealt with under UK statute.

The court also agreed that the effect of compelling Mr Chechetkin to arbitrate in California was, in circumstances where the arbitrator had held that Californian and not English law applied, to deprive him of making the claims he wished to make under the FSMA. Allowing individuals to bring such claims here is an important matter of public policy. Bright J makes the key point that Financial Conduct Authority enforcement would likely be hindered if customer complaints were all handled overseas in confidential arbitral proceedings; the criminal prosecution of offences is an important public matter. The great emphasis on speed in the arbitral rules applied was clearly something that the English judge doubted would, in any event, be consistent with careful consideration of CRA 2015 and FSMA claims.

Potential consequences of the decision

As a consequence of the failure of Payward’s arbitration claim, Mr Chechetkin is able to pursue his claim in the English courts under the FSMA regarding the enforceability of his agreement with Payward. The merits of Mr Chechetkin’s FSMA claim with potentially further significant consequences for crypto and other trading platforms are yet to be determined.

International exchanges operating in the UK will want to consider their dispute resolution mechanisms carefully in light of this judgment. Litigating or arbitrating disputes in each jurisdiction where the consumer is found may well be unattractive and impractical.

Creative alternatives, including the bespoke incorporation of consumer-specific protections into governing law clauses, whereby, for example, an arbitrator might apply Californian law with due regard to the consumer-jurisdiction’s consumer rights law, could be one way of avoiding ceding jurisdiction to national courts.