Consumer rights triumph: UK court rejects enforcement of US arbitration award in Payward v. Chechetkin

On 3 July 2023, the English High Court rejected enforcing a US arbitration award issued by the Judicial Arbitration and Mediation Services (“JAMS”) in the case of Payward Inc and Others v Chechetkin [2023] EWHC 1780 (Comm)  (“P v C”). 

The High Court cited public policy in its judgment in favour of Mr Chechetkin, noting JAMS did not consider the implications of the applicable English Law in making its award, especially given that one party was a UK-based consumer. 

Background 

P v C involved Payward, Inc., Payward Ventures, Inc,. and Payward Ltd (collectively “Payward”) in a dispute with Maxim Chechetkin. Payward is a Kraken cryptocurrency exchange platform whilst Mr Chechetkin, a UK based lawyer, is a UK based consumer (in the context of these proceedings) who had opened a Payward account in 2017 to conduct significant cryptocurrency  trading activities. 

A dispute arose between Mr Chechetkin and Payward, when Mr Chechetkin lost over £600,000 on the Payward trading platform. Subsequently, he sought to recover the funds with proceedings in the English Courts against Payward, claiming that Payward’s activities in the UK were unregulated under the Financial Services and Markets Act 2000 (“FMSA”), when it should have been authorised by the FCA, and therefore he was not liable to pay his losses as his contract with Payward was unenforceable under section 19 of FSMA. 

Payward responded by initiating JAMS arbitration in California, as required by the Payward Terms and Conditions. The outcome of the arbitration was that JAMS found Payward had no liability towards Mr Checketkin and therefore he was not allowed to pursue his FSMA claim in the English Courts. 

Payward then sought to enforce the arbitration award in the High Court which considered the enforceability of the award along with Mr Chechetkin’s case that Payward’s activities constituted regulated activities within the meaning of FSMA.

Key Issues 

The key issues that the High Court had to consider in P v C were the following:

1. Consumer Status – Was Mr Chechetkin qualified as a “consumer” as defined by the Consumer Rights Act 2015 (“CRA”)?
2. Jurisdiction & Arbitration – Was the arbitration clause in Paywards Terms, which mandated arbitration in California under JAMS rules, enforceable?
3. Public Policy – Would enforcing the US arbitration award would be contrary to UK public policy, given the application of English law and consumer protection regulations?

Decision

The High Court held that:

1. Consumer Status – Mr Chechetkin was found to be a consumer under the CRA; the trading activities through which he suffered his losses were not part of his trade, business or profession as a UK based lawyer. 
2. Jurisdiction & Arbitration – The enforcement of the US arbitration award was rejected by the Court. The arbitration award was found to be unfair under the CRA, as it required disputes to be resolved in California which imposed significant burdens on Mr Chechetkin. 
3. Public Policy – The Court held that enforcing the JAMS arbitration award would be contrary to UK public policy, as the US arbitrator failed to consider English law which was relevant and essential to determining the dispute as Mr Chechetkin was a UK based consumer (namely the CRA  and FSMA) . 

Comment

Garon Anthony, Financial Services Disputes partner, comments:

“This judgment highlights the protection that English law provides to UK consumers, particularly in the context of arbitration agreements determined in an alternate jurisdiction which may impose unfair burdens on consumers. 

It also shows that cross border arbitration is complex and requires careful consideration of jurisdictional issues and applicable law when applied. 

The judgment has subsequently set a precedent for future cases involving the enforcement of arbitration awards and the application of consumer protection for UK consumers in cross-border disputes; it provides guidance on the application of the CRA and the FSMA in the context of international arbitration, with the Court confirming that the CRA and FSMA form part of UK public policy.”