In the first post-Brexit case concerning the interface between arbitration law and consumer protection law, the Court of Appeal (CA) in Soleymani v Nifty Gateway LLC partially overruled the lower court’s earlier ruling declining a stay of court proceedings in favour of arbitration. The decision’s impact on consumer arbitration in the UK remains to be seen.
Facts
The claimant, Mr Soleymani (S), took part in an auction held on the defendant Nifty’s crypto trading platform for a non-fungible token associated with the artwork Abundance by the artist Beeple. Because of alleged non-payment of the bid amount, Nifty referred the dispute to arbitration in New York under the JAMS Rules as provided in its terms of use.
S commenced a claim before the English court seeking a declaration that, among other things, the arbitration agreement in Nifty’s terms of use is unfair and not binding on him pursuant to section 62 of the Consumer Rights Act 2015 (CRA 2015). Nifty contested the claim and sought, among other things, an order pursuant to CPR Part 11 for a declaration that the court did not have jurisdiction to consider S’s claims and an order staying the English court proceedings under section 9 of the English Arbitration Act 1996 (AA 1996).
The court held in Nifty’s favour on both counts. On appeal, while the CA held that the first-instance judge was correct on her finding on the lack of jurisdiction, it vacated the stay on the proceedings and ordered a trial on the validity of the arbitration agreement under section 9(4) of the AA 1996.
For detailed facts and analysis of this case, see Legal updates, Section 9 stay granted because consumer claim under Civil Jurisdiction and Judgments Act 1982 fell within arbitration exception (English Commercial Court) and Court of Appeal overturns stay of English court proceedings in favour of arbitration in consumer law claim (English Court of Appeal).
Current state of play
Considering the unequal bargaining power between a consumer and a trader, the fairness and appropriateness of arbitration to resolve consumer disputes has been a policy concern in the EU and the UK. There are concerns of access to justice and the ability of private tribunals to rule upon consumer rights under domestic law, particularly in case of a foreign law governed arbitration proceeding.
In order to address the policy concern identified above, the CRA 2015 specifically states that “[a] term which has the object or effect of excluding or hindering the consumer’s right to take legal action or exercise any other legal remedy, in particular by […] requiring the consumer to take disputes exclusively to arbitration not covered by legal provisions” may be regarded as unfair.
In internet businesses such as the trading of crypto assets, it is not uncommon for traders to include arbitration or exclusive jurisdiction clauses in their standard terms. Notwithstanding this, these “decentralised and borderless” businesses would be subject to consumer rights regimes if “the trader [directs] its relevant commercial activities to this country”.
As a result, it is not inconceivable that courts and tribunals will be called on to determine the validity of dispute resolution clauses in consumer contracts. Of course, this would require courts and tribunals to determine whether the party is a “consumer” and whether the contract in question is a “consumer contract”. Previously, the Commercial Court in Ang v Reliantco Investments Ltd excluded the application of the exclusive jurisdiction clause in the standard terms of a crypto trading platform on the basis that the claimant was a “consumer” under the Brussels Recast Regulation.
Allocation of jurisdiction
In relation to consumer arbitration governed by a foreign law, there are two questions that arise:
- Does an English court have jurisdiction to decide the fairness and validity of the arbitration agreement?
- Consequently, should the English court grant a stay in favour of arbitration?
Jurisdiction
Under the Civil Jurisdiction and Judgments Act 1982 (CCJA 1982) (which implemented the Brussels Recast Regulation in the UK), in relation to a consumer contract, a consumer has the right to sue and be sued “in the courts of the part of the UK in which the consumer is domiciled” (sections 15B(2) and (3), CCJA 1982).
However, if the consumer contract has an arbitration clause, the jurisdiction gateway under the CCJA 1982 is not ordinarily available to the consumer to question the validity or applicability of the arbitration clause. This is because of the arbitration exception provided in Article 1(2)(d) of the Brussels Recast Regulation which would take precedence over the lis pendens provisions if arbitration were the subject matter of the proceedings. Importantly, in Soleymani, the CA agreed with the first-instance judge that this hierarchy was not reversed in consumer rights cases.
Stay
The test for granting a stay under section 9 of the AA 1996 requires a two-fold inquiry. First, there should be an arbitration agreement between the parties and the claims should be matters which under the agreement are to be referred to arbitration (section 9(1)). If this is satisfied, the court shall grant a stay unless the arbitration agreement is “null and void, inoperative, or incapable of being performed” (section 9(4)).
In deciding the allocation of jurisdiction between the court and the tribunal to decide the validity of the arbitration agreement, the court would need to consider various factors as identified by Popplewell J in Golden Ocean Group Ltd v Humpuss Intermoda Transportasi Tbk Ltd and another (The Barito) including among others:
- Whether the arbitrability issue is likely to fall to be resolved by the court in any event, for example in the context of enforcement of an award.
- The scope of the arbitrability question.
- Length and cost of arbitrability inquiry.
- Degree of nexus with England.
- Strength of arguments.
In the Soleymani case, the CA overruled the finding of the first instance judge who originally stayed the English proceedings and applied The Barito factors to hold that in consumer claims, “provided it is properly arguable that there is a consumer contract with a close connection with the UK and a consumer seeking to rely on their rights under domestic law, then […] the vindication of those consumer’s rights in that context is best decided by a domestic court”. Therefore, in the context of a section 9(4) inquiry, “the domestic court is better placed to undertake the fairness assessment under domestic law than a foreign arbitrator would be applying that law”. On this basis, a trial was ordered to determine the validity of the arbitration agreement.
The way forward
On jurisdiction, the CA noted that consumers may apply to the court for declaratory relief that an arbitration clause is unfair under the new jurisdictional gateways under CPR 6B PD 3.1 (including paragraphs 4A (connected claim gateway), (6)(a) (contract made within the jurisdiction), and 8 (claim made for a declaration that no contract exists)). For further information, see new and amended gateways with effect from 1 October 2022.
In a section 9(4) AA 1996 stay application, the inquiry as to whether a person is a “consumer” and whether a contract is a “consumer contract” will necessarily be a fact-specific one. Additionally, the weighting of The Barito factors in determining the jurisdictional competence of the court to conduct the arbitrability inquiry under section 9(4) AA 1996 would be different for consumer and commercial arbitration. The fact that the consumer is relying on its domestic law rights would be a “powerful factor in favour of the court deciding the issue rather than [the] arbitral tribunal, despite any overlapping issues”.
The opinions expressed in this blog post are those of the author alone and do not reflect the opinions or views of Boies Schiller Flexner or its clients.
