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Payward v. Chechetkin: U.K. Court Refuses Enforcement of Arbitration Award Made in California

Richard A Eastman


  • The English King’s Bench Commercial Court rejected the enforcement of a California-seated arbitration award, citing the public policy exception in Article V(2)(b) of the New York Convention.
  • The court highlighted the potential illegality of the underlying contract, emphasizing that enforcing the California award would contradict U.K. public policy, as British consumer protection laws should govern disputes involving U.K. residents.
  • The decision raises questions about the application of California choice-of-law principles in the arbitration, the enforceability of pre-dispute arbitration clauses in consumer contracts, and the broader issue of cross-border consumer arbitration agreements.
Payward v. Chechetkin: U.K. Court Refuses Enforcement of Arbitration Award Made in California
Fajrul Islam via Getty Images

Based on the public policy exception provided by Article V(2)(b) of the New York Convention, the English King’s Bench Commercial Court, in Payward v. Chechetkin [2023] EWHC 1780 (Comm), rejected an application to enforce an award made in a consumer arbitration seated in San Francisco, California.Maxim Chechetkin, a British citizen residing in England, had opened an account on the Kraken cryptocurrency trading platform operated in England by Payward Ltd., the United Kingdom (U.K.) subsidiary of San Francisco–based Payward Inc. Chechetkin’s online, clickwrap agreement with Payward called for arbitration of any disputes and for arbitration to occur under the rules of Judicial Arbitration and Mediation Services (JAMS) in San Francisco, with California law to govern.

During three and a half years’ trading on the Kraken platform, Chechetkin lost over £600,000. Chechetkin sought to recover these sums in the English courts. In response, Payward Ltd. initiated arbitration against Chechetkin before JAMS in San Francisco.

Chechetkin’s Suit Against Payward in England

Chechetkin sued Payward Ltd. in the English High Court, seeking recovery of his losses in the Kraken trades. He maintained that Payward Ltd. lacked authorization to deal in investments, a regulated activity under the U.K.’s Financial Services and Markets Act 2000 (FSMA), and that its doing so without such authorization was in contravention of the “general prohibition” imposed by section 19 of the FSMA. Chechetkin urged that his contract with Payward Ltd.—including its arbitration clause—therefore was not enforceable and that, pursuant to section 26 of the FSMA, his losses should be paid back to him. He maintained that the arbitration clause was also rendered unenforceable by section 71 of the U.K. Consumer Rights Act 2015 (CRA), which requires the court to “consider whether [a] term [in a consumer contract] is fair even if none of the parties to the proceedings has raised that issue or indicated that it intends to raise it.”

It is noteworthy that Chechetkin’s basic claim in the U.K. courts—that the Kraken cryptocurrency trading platform has been operating unlawfully as a securities exchange without authority—has domestic resonance in lawsuits recently filed by the U.S. Securities and Exchange Commission (SEC) against Binance, Coinbase, and, most recently, Payward Inc. (which operates as Kraken). See, e.g., SEC Press Release, SEC Charges Kraken for Operating as an Unregistered Securities Exchange, Broker, Dealer, and Clearing Agency (Nov. 20, 2023).

In the English High Court, Chechetkin surmounted a jurisdictional challenge raised by Payward Ltd. based on the arbitration agreement. The High Court rejected Payward Ltd.’s objection to jurisdiction, concluding that Chechetkin was a consumer for purposes of the U.K.’s Civil Jurisdiction and Judgments Act 1982. Chechetkin v. Payward Ltd & ORS, [2022] EWHC 3057 (Ch) (Oct. 25, 2022). Under section 15B of the act, a binding agreement with a consumer in the U.K. providing for a nonjudicial forum may be made only after a dispute has arisen. This, of course, is quite different from the prevailing law in the U.S., where consumer arbitrations are regular fare. See, e.g., American Arbitration Ass’n, Consumer Arbitration Rules (Sept. 1, 2014); JAMS, Consumer Arbitration Minimum Standards (July 15, 2009).

But the arbitration in California had proceeded on a parallel track. By the time of the English High Court decision confirming its jurisdiction to adjudicate Chechetkin’s claims, the arbitration against him had already proceeded to final award in California.

Payward’s California-Seated Arbitration Against Chechetkin

In May 2022, the arbitrator had rejected Chechetkin’s request to stay the arbitral proceedings pending the jurisdictional hearing in the English High Court, concluding that the merits were to be decided pursuant to California law and the Federal Arbitration Act. A second prehearing order denied Chechetkin’s challenges to arbitrability and jurisdiction, ruling that Chechetkin’s clickwrap agreement with Payward Ltd. was binding, including the application of California law and arbitration before JAMS in San Francisco. Then, on October 18, 2022, in the final award the arbitrator concluded:

Respondent assumed the risk of trading on Payward’s platform. . . . Payward adequately disclosed the risks of margin trading in detail in the Terms.
. . . .
Respondent’s assertion that Payward should repay the 613,000 pounds he deposited into his account is denied. Respondent engaged in risky margin trading, assumed the risk, and caused the loss of the money in his account.

Payward v. Chechetkin, slip op. at 20.

Payward Ltd. then sought to enforce the California arbitration award in England. Chechetkin opposed, relying on exceptions to enforceability, including section 103(3) of the Arbitration Act of 1996, which provides that recognition or enforcement may be refused if it would be “contrary to public policy.”

The King’s Bench Decision

The two main issues in the King’s Bench Commercial Court were, first, whether Chechetkin was a consumer entitled to the benefits of the CRA and, second, whether, as Chechetkin claimed, Payward Ltd.’s business in the U.K. was not authorized and its activities thus prohibited by the FSMA. The court observed that “[i]f [Chechetkin’s assertion] is correct, then . . . Payward Ltd was almost certainly committing a criminal offence under [section 23 of the FSMA]” and “Mr. Chechetkin’s agreement(s) with Payward Ltd are unenforceable, pursuant to [section 26 of the FSMA].”

The court refused to enforce the arbitration award or to enjoin the FSMA proceedings as Payward Ltd. had sought. The court found that Chechetkin was a consumer within the meaning of section 2(3) the CRA. It concluded that the contract’s requirements of application of California law and arbitration in San Francisco were unfair within the meaning of section 62 and section 71 of the CRA, and that the consumer protections of the CRA were a strong public policy of the U.K. Finally, it held that if enforcement of the award were granted, a contract illegal and unenforceable in the U.K. would deprive Chechetkin of his rights under the FSMA.

The decision in Payward v. Chechetkin makes clear the implications of U.K. law on attempted enforcement in the U.K. of foreign arbitration awards against consumers resident in the U.K.: Enforcement is unlikely. But the case raises other important issues, such as the following:

  • Just what are the principles of California choice-of-law jurisprudence, and were they correctly applied by the arbitrator?
  • And should pre-dispute arbitration clauses in consumer contracts ever be enforced?

California Choice-of-Law Jurisprudence and the Chechetkin Arbitration

California Civil Code section1646 states: “A contract is to be interpreted according to the law and usage of the place where it is to be performed; or, if it does not indicate a place of performance, according to the law and usage of the place where it is made.” Section 1646 is silent as to choice-of-law clauses.

A leading case on choice-of-law clauses in California is Nedlloyd Lines B.V. v. Superior Court, 3 Cal. 4th 459 (Cal. 1992). Nedlloyd involved a shareholders’ agreement among numerous parties, including Netherlands companies, an Oregon corporation, Hong Kong and British companies, and individual residents of California and Singapore. Its choice-of-law clause called for application of Hong Kong law. The Supreme Court of California ruled that the choice-of-law clause should be enforced, stating that its ruling “rests on the choice-of-law rules derived from California decisions and the Restatement Second of Conflict of Laws, which reflect strong policy considerations favoring the enforcement of freely negotiated choice-of-law clauses.” Id. at 461.

The Nedlloyd opinion quotes section 187(2) of the Restatement Second of Conflict of Laws:

The law of the state chosen by the parties to govern their contractual rights and duties will be applied, . . . unless either (a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties choice, or (b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.

If one were to apply Nedlloydto the situation in Payward v. Chechetkin, would the California choice-of-law clause survive? Note the phrase “freely negotiated” used by the Nedlloyd court. The Chechetkin arbitration clause was not freely negotiated. Note, also, exemption (b) in section 187(2) of the Restatement. In Chechetkin, the U.K. clearly had materially greater interest in a contract between its citizen and resident Chechetkin and Payward Ltd., an English company, and, absent the agreement’s choice of California law, under both the Restatement and Civil Code section1646, the applicable law of the contract between Chechetkin and Payward Ltd. would have been the law of England.

However, while the Nedlloyd court emphasized the factor of arm’s length negotiation, comment (b) to section 187 of the Restatement only recommends careful review of adhesion contracts and refusal “to apply any choice-of-law provision . . . if to do so would result in substantial injustice to the adherent.” In Washington Mutual Bank v. Superior Court of Orange County, 24 Cal. 4th 906, 918 (Cal. 2001), another leading California case on choice-of-law clauses, the California Supreme Court, considering multiple different applicable choice-of-law clauses in a class action suit, found that California had no policy against enforcing choice-of-law clauses in contracts of adhesion, quoting comment b to section 187 to the Restatement in full.

There is another aspect. The contract between Chechetkin and Payward Ltd. was, it seems, illegal and unenforceable under English law. California courts will not enforce illegal contracts. Cal. Civil Code § 1667. Research has not identified any California cases applying this statute to contracts illegal under foreign law. However, section 202 of the Restatement is relevant here: “When performance is illegal in the place of performance, the contract will usually be denied enforcement.”

There are numerous decisions by state and federal courts in California addressing the enforceability of contractual choice-of-law clauses under California law. Almost all of them involved choices of law other than that of California. Cases involving clauses selecting California law are rare, and those rejecting California’s law in the face of a contract choosing it are rarer yet. An exception is In re Facebook Biometric Information Privacy Litigation., 185 F. Supp. 3d 1155 (N.D. Cal. 2016), in which Illinois consumers had signed up online for Facebook accounts. The court applied the Restatement section 187 test and found the California choice-of-law clauses contrary to a fundamental policy of Illinois, which, the court held, had a greater interest in the determination of the case.

In the arbitration between Chechetkin and Payward Ltd., it seems clear that, if the evident illegality of the underlying contract under English law had been clearly presented to the arbitrator, and if the arbitrator had applied the standards of Nedlloyd and the Restatement, the award most likely would have been in Chechetkin’s favor.

The King’s Bench opinion offers little information about submissions made to the arbitrator, and of course the award itself is not publicly available (though it likely would be had a motion for vacatur been filed in a U.S. court). According to the opinion, the first time that Chechetkin raised the prospect of illegality under English law was in a motion filed on June 24, 2022, once the arbitral proceeding was well under way. The substance of any other submissions by Chechetkin is not mentioned in the opinion.

The legal authority cited by the arbitrator, however, so far as shown in the King’s Bench opinion, was drawn entirely from domestic U.S. cases, involving no issues of choice-of-law or arbitrability in the international setting. The King’s Bench opinion also suggests that the arbitration was conducted under the JAMS Comprehensive Arbitration Rules & Procedures, without any mention of the JAMS International Arbitration Rules & Procedures. This leaves the strong impression that very little briefing, if any, had been made in the arbitration on the legality of the contract under U.K. law or on principles of California law bearing on the enforceability of its choice-of-law clause.

Thus far, this discussion of California conflict of law has cited only court precedents. But do California choice-of-law principles even apply in arbitration? Maybe not. Rule 24(c) of the JAMS Comprehensive Rules simply directs the arbitrator to follow the agreement of the parties on applicable law and, if none, to “be guided by the rules of law and equity that he or she deems to be most appropriate”—on its face arguably freeing the arbitrator from following California conflict-of-law rules. And Article 18.2 of the JAMS International Rules suggests a clear preference, in addressing applicable law, to “the law of the seat of the arbitration.” Article 21(1) of the International Chamber of Commerce Arbitration Rules provides similarly. Other authorities, such as Emmanuel Gaillard, suggest a virtual consensus that international arbitrators are bound neither by the choice-of-law rules of the seat nor choice-of-law clauses. However, where, as here, the purported contract was illegal and void under the law of the place of performance and the domicile of both parties, surely the arbitrator should have considered those facts; and surely the contract, including its arbitration clause, was equally void and unenforceable under California law.

Implications: Enforcement of Foreign Arbitration Awards and Pre-Dispute Arbitration Clauses

After discussing at some length various statutory provisions and case law relevant to the question of whether enforcement of the arbitration award would be contrary to U.K. public policy, the King’s Bench opinion reaches a succinct conclusion:

The point is . . . that the UK Parliament has decided that the protection of consumers domiciled in the UK should be governed by the Consumer Rights Act 2015, not by foreign laws or standards.
. . . . This alone is sufficient to make the Final Award unenforceable. Questions that should have been answered under the Consumer Rights Act 2015 have instead [in the award] been answered under the laws of California and that, in itself, is contrary to UK public policy.

The court goes on to consider whether the arbitration clause was fair within the meaning of the statute and decides that it was not and, further, that enforcing the California award would prevent Chechetkin from vindicating his claim under the FSMA.

The decision in Chechetkin v. Payward suggests that arbitration awards made outside the U.K. against British consumers are, for practical purposes, likely to be held unenforceable in the courts of the U.K. Still, one should note that the arbitrator’s failure to consider Chechetkin’s possible rights under U.K. law weighed very heavily with the court, as is apparent by the court’s comments:

  • “My impression is that, having decided that cl. 23 was incorporated into the contract, and having had regard to the express choice of law that this provision contains, [the arbitrator] had no further interest in any issue as to applicable law, or as to whether the enforceability of cl. 23 could be attacked on any other basis (as Mr Chechetkin sought to contend).”
  • “[A]t the preliminary hearing on 31 May 2022 . . . the arbitrator was noticeably impatient when reference was made to the possibility that English law might apply.”
  • “[T]he JAMS Rules, taken in conjunction with cl. 23, [are] unfertile ground for a claim whose existence depends on the application of an English statute.”
  • “A US arbitrator with no experience of English law, let alone the English regulation of financial services and marketing, is not obviously the ideal tribunal for this kind of claim. Where the arbitral institution makes it a priority to ‘save time and money’, and prioritises ‘efficiency, speed and results’, the arbitrator may well wish to favour the short and simple route over one that would require the investigation of foreign laws. My reading of the arbitrator’s rulings, and her other comments, is that this factor was heavily in play.”         

My own belief is that the arbitrator’s decision to enforce the arbitration clause and its choice-of-law provision was wrong as a matter of California law. But suppose the arbitrator had tried to apply English law? Engaging lawyers competent in the laws of the U.K. could be a daunting endeavor for a claimant in a domestic U.S. consumer arbitration.

Beyond Chechetkin

This brings us to an elephant in the room: Should pre-dispute arbitration clauses in consumer contracts ever be enforced? In this respect, Chechetkin v. Payward presents a teachable moment. U.S. arbitration practitioners, and particularly those of us in California, should pay attention.

Pre-dispute arbitration agreements between businesses and consumers are not enforceable in many economically advanced countries, including the U.K., Japan, and the nations of the European Union. The United States is an outlier in allowing them to be enforced as freely as they are. In my opinion, it is far past time to legislate against the enforceability of pre-dispute consumer arbitration agreements. This is even more the case where a cross-border consumer contract is involved. Due to the U.S. Supreme Court’s decision in Perry v. Thomas, 482 U.S. 483 (1987), that the Federal Arbitration Act withdraws the states’ power to require a judicial forum where a contract mandates arbitration, such legislation must necessarily be at the federal level. There have been efforts at national reform over the years. As exemplified by the Forced Arbitration Injustice Repeal Act of 2022, these initiatives have uniformly stalled in committee, and we are unlikely to see reform in the near future. Meanwhile, alternative dispute resolution practitioners should pay heed to Chechetkin v. Payward.