English Court Refuses To Enforce Arbitral Award On Public Policy Grounds Linked To English Consumer Protection

• Published date: 18 August 2023
• Law Firm: Mayer Brown
• Author: Mr Raid Abu-Manneh, Sam Prentki, Stephen Moi, Rhys Morgan, Joseph A. Castelluccio, Mark Leeds, Ondrej Hajda and Lisa Dubot

The English Commercial Court has refused to enforce an arbitral award made in a JAMS arbitration seated in California on the basis that it would be contrary to UK public policy under section 103(3) of the Arbitration Act 1996 (the "Act"), as enforcement of the award would breach English consumer protection legislation and financial regulation (each of which have the status of UK public policy). Payward Inc v. Chechetkin¹ is a rare example of the English courts refusing to enforce a foreign award on public policy grounds, and may become a leading case on the interaction between consumer protection mechanisms and standard form dispute resolution provisions. The decision may have particularly significant ramifications for international business to consumer ("B2C") companies.

In this Legal Update, we summarise the case background and the English court's decision, and highlight the' key takeaways, including considerations for B2C operators utilising standard form contracts with consumers.

Background: parallel English Litigation and US Arbitration

Mr Chechetkin, a UK-based lawyer, traded cryptocurrency on "Kraken", a trading platform managed by Payward, and incurred losses of c. '600,000.

Mr Chechetkin is attempting to recover his losses by suing Payward in the English courts, on the basis that Payward engaged in regulated activity (for the purposes of the UK Financial Services and Markets Act 2000 ("FSMA") without the requisite authorisation, in breach of FSMA (the "FSMA Litigation").

To this point, the key obstacle that Mr Chechetkin's claim has faced is that Payward's terms of service ("Terms"), to which he agreed, provided, at "Clause 23":

• for arbitration in San Francisco, California, conducted by a single arbitrator under the JAMS Rules; and
• that "the state or federal courts in San Francisco California have exclusive jurisdiction over any appeals of an arbitration award and over any suit between the parties not subject to arbitration...Any dispute between the parties will be governed by these Terms and the laws of the State of California and applicable United States law, without giving effect to any conflicts of laws principles that may provide for the application of the law of another jurisdiction [bold for emphasis]".

In particular, this meant that:

1. When Mr Chechetkin threatened to bring the FSMA Litigation Payward brought an arbitration against Mr Chechetkin in order to prevent him from doing so. In particular, in accordance with Clause 23, Payward brought a JAMS arbitration against Mr Chechetkin conducted by a single arbitrator, undertaken in California, and subject to the laws of the State of California and applicable United States law (the "Arbitration") This Arbitration concluded on 18 October 2022, with an "Award" that found, amongst other things, that Mr Chechetkin
   1. breached the Terms when he threatened suit in the UK;
   2. was bound to arbitrate his disputes with Payward; and
   3. was prohibited from filing or prosecuting a claim against Payward in court, whether in the U.K. or any other jurisdiction.
2. When Mr Chechetkin brought the FSMA Litigation, Payward initiated a jurisdictional challenge in the English courts. This challenge was defeated on 25 October 2022².

Enforcement of the Award in the English Court

Payward sought to enforce its Award in the English court on the basis that it was enforceable as a New York Convention award, and was therefore to be "recognised as binding on the persons as between whom it was made" and "enforce[able] in the same manner as a judgment or order of the court", pursuant to section 101 of the Act.

Enforcement of the Award would have ended the FSMA Litigation, as it would have prohibited Mr Chechetkin from continuing his claim before the English courts.

As such, Mr Chechetkin resisted enforcement, submitting that enforcement must be refused pursuant to section 103(3) of the Act, as "it would be contrary to public policy to recognise or enforce the award". In relevant part, Mr Chechetkin argued that enforcement of the Award would be contrary to the public policy set out in FSMA and the Consumer Rights Act 2015 (the "CRA").

The...