Commercial Court takes rare decision to refuse enforcement of arbitration award on public policy grounds in crypto case

The Commercial Court has refused to enforce a foreign-seated arbitration award on the grounds that to do so would be contrary to public policy, including because it was contrary to certain protections provided under the Consumer Rights Act 2015 (CRA) and the Financial Services and Markets Act 2000 (FSMA), which the court held were an expression of UK public policy and required the issues to be governed by English law and not to be decided overseas: Payward Inc and others v Chechetkin [2023] EWHC 1780 (Comm).

The case concerned a dispute between Mr Chechetkin and the Payward group, which operates the Kraken cryptoasset trading platform. Mr Chechetkin, a UK-based consumer, undertook various trading activities on the platform in 2020 and lost more than £600,000. Payward’s terms of service were governed by California law and contained a Judicial Arbitration and Mediation Service Rules (JAMS) arbitration clause with disputes to be determined by a sole arbitrator seated in San Francisco. In response to Payward commencing a JAMS arbitration in 2022, Mr Chechetkin brought a jurisdictional objection in the English court and challenged the arbitrability of the dispute, on the basis that Payward had breached FSMA because it was conducting activities for which it did not have the necessary authorisation. Payward received a favourable arbitration award in California which it sought to enforce in England.

Section 74 of the CRA specifies that where (as in this case) a consumer contract has a close connection with the UK, the CRA applies regardless of whether the parties have chosen a non-UK governing law. The arbitration award applied only California law, without taking account of the CRA. The court held that this alone was sufficient to make the award unenforceable as a matter of public policy.

In addition, the court found that the arbitration clause was “unfair” pursuant to s.62 of the CRA, which provides that an unfair term of a consumer contract is not binding on the consumer. The court was clear that the mere fact that a consumer contract provides for disputes to be resolved in arbitration does not make it unfair. However, this clause was unfair, as it contained a number of significant disadvantages for Mr Chechetkin – including that he had to use US attorneys, which was expensive and inconvenient, and that a US arbitrator was not an appropriate tribunal for the issues in the case.

The court also held that stifling Mr Chechetkin’s claim under FSMA would be contrary to the public policy considerations under FSMA itself – including because claims advanced overseas are less likely to come to the attention of the FCA.

The case suggests that businesses may have difficulties enforcing foreign judgments or arbitral awards against consumers in the UK, where the underlying contract had a close connection to the UK and the decision applied a (contractually agreed) foreign governing law without reference to the CRA. The decision will also be of particular interest to financial institutions as a key consideration for the court was the desire not to stifle the FSMA claim, which would have been stopped in its tracks had the arbitration award been enforced.

For more information, please see this post on our Arbitration Notes blog.