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Cryptocurrency and Overseas Legal Regimes

Author: Syedur Rahman  1 August 2023
2 min read

Syed Rahman details a case with positive implications for crypto consumers

The recent case of Payward Inc v Chechetkin [2023] EWHC 1780 (Comm) is notable for consumers who may otherwise have faced the challenge of dealing with overseas legal regimes. It saw the Commercial Court hand down a rare ruling in refusing to enforce a Judicial Arbitration and Mediation Services (JAMS) arbitration award on public policy grounds.


Case Background

Mr Chechetkin is a Russian-qualified, UK-based lawyer who set up an account on Payward’s Kraken cryptocurrency trading exchange March 2017. Whilst Mr Chechetkin undertook various activities on his account, there was a notable increase in trading activity from March 2020 onwards. Over the course of a few months, he lost in excess of £600,000.

Competing claims were issued by both Mr Chechetkin and by Payward. Mr Chechetkin issued a claim in the High Court in the UK in February 2022 on the basis that Payward was in breach of the General Prohibition under section 19 of the Financial Services and Marketing Act 2000 (FSMA). A jurisdictional challenge was brought by Payward in England in June 2022, which ultimately failed.

Owing to Payward’s terms of service, which dictated that any disputes were to be dealt with by means of arbitration seated in California and governed by JAMS, Payward filed for such arbitration in January 2022. Payward obtained a final arbitral in California in October 2022, which it subsequently sought to enforce in England - which was the basis for these latest proceedings. This claim was ultimately unsuccessful, for the reasons set out below.


Key Take-aways

Bright J deemed Mr Chechektin to be a ‘consumer’ pursuant to the Consumer Rights Act 2015 (CRA 2015), with this being a relatively easy point to come to determination on, in Bright J’s view. It was clear from both the information provided to Payward when setting up the account in 2017 and the information put before the court, that cryptocurrency trading was not Mr Chechetkin’s profession or trade, even though it was done in high volumes and for relatively significant amounts.

Furthermore, the fairness of the arbitration clauses within Payward’s terms of service – and of any such clauses generally - is required to be considered by the court in the context of CRA 2015. It therefore follows that this requirement reinforces this notion as a matter of public policy, as was duly noted by Bright J.

The judgment also notes that as both FSMA and CRA 2015 are UK-wide statutes - and not just England-specific statutes - this further enshrines the issue as being one of public policy. Therefore, Payward’s claim ultimately failed on public policy grounds as set out in s.103(3) of the Arbitration Act 1996.


Practical Considerations

As many crypto asset exchange and service providers seek to have universal arbitration clauses in their terms of service, such international exchanges operating within the UK will do well to bear in mind the implications of this judgment. It serves as a means for consumers to rebut these clauses and seek to bring claims in jurisdictions that are more appropriate for them.

Whilst the UK is well renowned for giving due credit to well-respected arbitral awards, the issues at the core of this matter (i.e. public policy) are clearly far-reaching. The dispute mechanisms of exchanges operating within the UK will need to be carefully considered as a result.

The stance taken by the court in this instance will favour the consumer. Consumers in such situations will not need to endure the additional expense and effort of dealing with disputes in (often) foreign jurisdictions, which can require the hiring foreign lawyers and a need to become familiar with other legal regimes.

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Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, international arbitration, civil recovery, cryptocurrency and high-stakes commercial disputes.

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