Blake Morgan holds jurisdiction for client in important crypto case
Jurisdiction of the English Court held over important crypto asset case based on UK financial services legislation overriding a U.S. law and arbitration clause.
The Underlying Case
“Kraken” is a major crypto-asset exchange based in the U.S. which has a material presence in the UK market (amongst others).
Our client, a British citizen domiciled in the UK, held an account with Kraken and lost significant sums which he had deposited with the platform.
He commenced proceedings in England against Kraken (in particular Payward Limited, the UK incorporated group company) in February 2022 to recover the lost sums under the UK’s primary financial services legislation, the Financial Services and Markets Act 2000 (“FSMA”).
In parallel, Kraken commenced and pursued an arbitration against our client in California. The basis for doing so was a series of provisions in Kraken’s mandatory terms of service which state that disputes should be referred to arbitration in California and be subject to Californian and U.S. law (the “Foreign Law and Arbitration Clause”). Kraken claimed in the arbitration that that Clause prevented our client form pursuing his FSMA case in the English Court.
Jurisdiction Challenge
Kraken have not yet defended the FSMA claim. Instead, they challenged the jurisdiction of the English Court to decide it and indeed sought to have the English claim dismissed.
Kraken argued that the Foreign Law and Arbitration Clause deprived the English court of jurisdiction per se. Further, by the time the jurisdiction challenge was heard in London, the arbitrator had issued an award (amongst other things) “enjoining” our client from pursuing his FSMA claim (or any other claim) against Kraken in any court. On that basis, Kraken also argued that the award itself should have the effect of depriving the Court of its jurisdiction under s.101 of the Arbitration Act 1996 (which implements provisions of the New York Convention into UK law). In submissions, Kraken acknowledged it could not offer an authority for that proposition.
Conversely, we argued (amongst other things) that our client had the statutory right to bring proceedings in this jurisdiction as a consumer domiciled in the UK under s.15B of the Civil Jurisdiction and Judgments Act 1982 (“CJJA” – incorporating law from the EU regulation, “Brussels Recast” retained post “Brexit”).
Jurisdiction Held
Mr Justice Miles dismissed Kraken’s jurisdiction challenge with the following conclusions:
- Our client was a consumer for the purposes of the CJJA and was therefore entitled to commence proceedings in this jurisdiction.
- The Foreign Law and Arbitration Clause did not deprive the English court of jurisdiction over the dispute.
- Similarly, the Californian arbitration award did not deprive the English court of jurisdiction per se.
- Indeed, the opposite conclusion contended for by Kraken would have serious problems because otherwise:
- an arbitration award which remained susceptible to challenge could have the effect of dismissing court proceedings; and
- the authority which judges have under UK statute (mirroring provisions in the New York Convention) to refuse recognition and enforcement of an arbitration award would be undermined.
In our experience, many standard terms of service in the crypto space contain foreign law and arbitration provisions. The ramifications of this case could therefore go well beyond the parties to it.
Counsel for our client are Chloe Bell of 3VB and Henry Reid of Outer Temple Chambers.
Chechetkin v Payward Ltd & Ors [2022] EWHC 3057 (Ch) Financial List.
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