Author: Dr. Gizem Alper
The Payward Group (“Payward”) finds itself entangled in regulatory scrutiny by the U.S. Securities and Exchange Commission facing charges for unregistered activities in the U.S. On the other side of the pond in the U.K., Payward has unsuccessfully litigated the enforcement of a U.S. arbitration award and faces related private party litigation concerning previous unauthorized activities.
The Payward v. Chechetkin case is about the enforcement of an arbitration award rendered under the auspices of JAMS. Chechetkin traded in the Kraken crypto-trading platform owned by Payward from 2017 when he opened his account until late 2020. When opening an account, Chechetkin had agreed to the standard terms with a governing law and arbitration clause by way of a clickwrap agreement. The standard terms stipulated that California law was the governing law “without giving effect to any conflict of laws principles that may provide for the application of the law of another jurisdiction.” Further, there was a JAMS arbitration clause and an exclusive jurisdiction clause authorizing San Francisco state or Federal courts over any appeals on arbitration matters and any lawsuit that was not subject to arbitration.
Chechetkin lost funds on the Kraken crypto-trading platform and sought recovery by filing at the English High Court alleging that Payward’s operations were not authorized in the U.K. under the Financial Services and Markets Act 2000 (“FSMA”), which rendered his contract with Payward’s unenforceable (“FSMA claim”). Consequently, Payward initiated the JAMS arbitration proceedings and in 2022, the High Court denied dismissal of the FSMA claim.
The arbitrator ultimately held that the arbitration clause was valid and applied California law, without giving any regard to English law. When Payward sought enforcement of the award in 2023, the High Court refused on public policy grounds.
The main focus of the court was the Consumer Rights Act 2015 (“CRA”) and FSMA, as both pertained to public policy. However, there were a few other concepts discussed, namely issue estoppel and competenz- competenz, the latter as obiter dictum.
As regards the CRA, the court first established that Chechetkin was undoubtedly a consumer under the CRA because he had not opened the Kraken crypto account in the course of a trade, business, craft or, profession and, although as a lawyer, he was “sophisticated”, he did not have material knowledge, experience or, sophistication in relation to cryptocurrency. Although the definition differed, the JAMS arbitrator had also concluded that Chechetkin was a consumer under the JAMS Consumer Arbitration Minimum Standards.
The court held that the arbitration had violated CRA public policy because the arbitrator should have applied English law (i.e. CRA) as Chechetkin was a British citizen residing in England and the arbitration clause was unfair; an English consumer would not have reasonably agreed to an arbitration in California under Californian law.
As regards the FSMA, the court highlighted that the enforcement of the award would halt the FSMA claim proceedings and ultimately deny Chechetkin from being properly heard. The court also stated that, in foreign and confidential arbitration proceedings, the investigation and prosecution of offenses were less likely.
Payward v. Chechetkin follows the decision of Soleymani v Nifty Gateway wherein the English Court of Appeal refused to stay concurrent proceedings in a NFT-related foreign consumer arbitration proceeding. These cases are noteworthy because London has always been a hub for international arbitration and courts have denied enforcement on public policy grounds on rare occasions. This has been emphasized in Payward v. Chechetkin wherein consumer arbitration in general was not found unfair, but given the particulars, the present JAMS arbitration award was found unfair and against public policy.
One of the main underlying reasons for non-enforcement was because the arbitrator had not considered any element of English law, while it should have; the CRA may nevertheless apply where the contract has a close connection with the U.K., as was the case with Chechetkin. Chechetkin was a British citizen residing in England, his funds were in U.K. Sterling and transferred from a U.K. bank account.
English law and the approach of English courts are liberal compared to some other jurisdictions where consumer rights are left solely to national laws and, standard contract terms, including blanket foreign arbitration clauses may be deemed unenforceable per se. As such, crypto companies and other technology companies offering services to consumers globally should bear this in mind and comprehend that traditional blanket clauses may not be a “one-size-fits-all” solution.
Another essential aspect to note is the regulatory framework. Laws concerning digital assets, including crypto trading are still emerging and legislators are lagging in addressing the needs arising from rapid technological advancements. The regulatory framework varies across the globe, with a fragmented and non-uniform regulatory environment. Therefore, given the particulars of regulatory laws, companies should reassess their ADR strategies in the consumer, crypto trading, and digital asset space.
Dr. Gizem Alper
Dr. Gizem Alper is a bilingual academic and international legal and ADR consultant, dual-qualified in New York and Turkey. With an extensive professional background spanning over two decades and across three continents, she specializes in global commercial and corporate transactions as well as dispute settlement mechanisms, with a particular emphasis on dispute prevention.
A graduate of Ankara University, Dr. Alper earned a master’s in European Business Law from Leiden University and U.S. Legal Practice from the Elisabeth Haub School of Law at Pace University. She holds a P.hD degree in law from Istanbul University, where she wrote about the ultra vires doctrine.
Dr. Alper is a listed arbitrator and/or mediator with international tribunals, such as the London Court of International Arbitration and, holds memberships in various professional organizations. Currently, she serves as the secretary for the Commercial Law and Uniform State Laws Committee at the New York City Bar. In her academic capacity, Dr. Alper has contributed significantly to the field through publications and lectures on international commercial law and dispute resolution, with a specific focus on the CISG. She previously held positions in Turkish universities and currently oversees the Pace CISG Database at the Institute of International Commercial law.