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1 August 2023

Digital Currency – Court finds Arbitration Clause in platform T+Cs does not deprive the Court of Jurisdiction in consumer claim

Summary

In Chechetkin v Payward,[1] the Claimant was an individual who lost money trading digital currencies on the Defendants’ cryptocurrency trading platform. He argued that the English court should have jurisdiction over the dispute, claiming to be a consumer under the Civil Jurisdiction and Judgments Act 1982 (‘CJJA’). The Defendants, however, argued that the dispute should be resolved through arbitration as per their terms and conditions, and contested the Claimant’s consumer status due to his professional background and trading behaviour. The High Court sided with the Claimant, ruling that the arbitration clause did not prevent the Court from having jurisdiction over a dispute involving a consumer.

Background

This case concerned an application brought under Part 11 of the Civil Procedure Rules, in which the Court was asked to determine whether it had jurisdiction over the Claimant’s claim against the Defendants for losses when using their platform. The Claimant alleged that he had lost substantial sums through trading activities on the Defendants cryptocurrency-trading platform, in breach of the UK Financial Services and Markets Act 2000, and sought the repayment of these sums. The Defendants argued that the Claimant had agreed to submit the disputes to arbitration, as per an arbitration clause in the terms and conditions of the platform, under the JAMS arbitration system. A partial award from the arbitrator in June 2022 confirmed the arbitrator’s own jurisdiction, and a final award on 18 October 2022 concluded that the Claimant’s claims failed, and that the Defendants had no liability to him. Therefore, the Claimant sought to persuade the Court that he could bring a claim there.

The Parties’ Submissions

The Claimant argued that the court should reject the Defendants’ application to dismiss the proceedings and declare that the English court has jurisdiction over the dispute. He contended that he is a consumer within the definition set out in s. 15E CJJA, and that the contract for placing digital asset trades was outside his trade or profession as a lawyer. Additionally, he argued that the case falls within s. 15B of the CJJA, as the proceedings have as their subject matter a matter relating to a consumer contract, where the consumer is domiciled in the United Kingdom.

The Defendants argued that the proceedings should be dismissed, and a declaration made that the Courts of England and Wales had no jurisdiction over the dispute, as per the arbitration clause in the terms and conditions which favoured the JAMS arbitration system, and otherwise had an exclusive jurisdiction clause for the Courts of California. The Defendants contested the Claimant’s assertion that he is was consumer within the definition of the CJJA, highlighting his position as a lawyer with substantial experience in banking and finance (he had until recently worked for the European Bank for Reconstruction and Development and had been a banking lawyer for more than 11 years), and the fact that he had traded significant amounts on the platform over several years, incurring significant losses. The Defendants noted that the Claimant had opened a so-called ‘pro account,’ increasing his trading limits, suggesting a level of sophistication and expertise beyond that of a typical consumer.

The Defendants relied on the partial award confirming the arbitrator’s jurisdiction, and a final award concluding that Claimant claims failed, and the Defendants had no liability to him. They contended that the effect of the partial award and the final award of the arbitrator had the effect under s101 of the Arbitration Act 1996 that the Court must treat the arbitral award as binding, and therefore decline any jurisdiction over the dispute.

Decision and Reasons for Judgment

The Court found that Mr. Chechetkin was a consumer. The judge stated that; ‘The sophistication, expertise or knowledge of the person is irrelevant for the purposes of the statutory definition [of consumer].’ Despite being a banking lawyer, law was his profession, he was not engaged in financial services. Using a so-called ‘pro account’ did not make him an investment professional. Miles J. went on:

‘At any rate, the section [of the CJJA] does not depend on what the parties said about themselves. It requires an objective ascertainment of whether the contract was for a purpose which can be regarded as being outside the relevant person’s trade or profession. I have reached the clear view that the claimant is a consumer within that definition.’

The Court found in favour of the Claimant, based on the precise wording of the Arbitration Act. An arbitration clause, such as the one in the platform terms and conditions, does not deprive the Court of jurisdiction. The Arbitration Act merely allows for the Court to stay proceedings where the parties have entered into an arbitration agreement, it does not remove jurisdiction.[2]

The Arbitration Act s101 sets out the effect of a previous arbitral award. Such an award can be relied on by the parties by way of defence, setoff or otherwise in any legal proceedings in England and Wales or Northern Ireland.[3] This means that a binding decision of no liability would be a defence to claims on the same subject matter brought before the English Courts, and may give rise to issue estoppel. However, that does not mean that the Court does not have jurisdiction to hear the case in the first place.

The jurisdiction of the Court in this case (which uses the gateway that the claimant is a consumer based in the UK) is not based on any sort of merits threshold (as it would be for service outside the jurisdiction). Therefore, the fact that the Defendants may have an absolute defence from the arbitral award does not affect the jurisdiction of the Court.

Commentary

There is growing interest in disputes concerning digital currency, the technology is not widely understood and the jurisdiction issues are not always clear.  Knowing in what circumstances the English Courts are willing to take jurisdiction and their attitude toward arbitration proceedings in this arena is important.  Arbitration comes with many advantages, including confidentiality, flexibility, and the ability to enforce awards globally. However, companies (such as those who run cryptocurrency trading platforms) seeking to rely on arbitration clauses in their terms and conditions when contracting with UK consumers, will need to reconsider their approach. Even if they achieve a favourable arbitral award, this case shows that it does not prevent the English Courts from having jurisdiction to hear a further complaint from the consumer. This case has so far just been argued on the specific point of whether the English Courts have jurisdiction. It seems likely that the next step procedurally is for the Defendants to make an application for summary judgment based on the binding arbitral award. The Court noted that at the jurisdiction phase, the merits (or lack thereof) of the consumer’s claim are irrelevant, but that would not be the case (in fact, quite the reverse) when it comes to an application for summary judgment.

[1] Chechetkin v Payward Ltd & Ors [2022] EWHC 3057 (Ch)

[2] Ibid. at 52.

[3] Ibid. at 53.