Consumer Rights on Trial: Unmasking the English Court's Public Policy Paradigm

By Pratama Tambunan
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Pratama is an exchange student through the IGSP Program interested in international disputes and environmental law.

On July 3, 2023, the High Court of England and Wales took an unfamiliar step in applying the well-known public policy exception. [1] This exception, enshrined in Section 103 of the Arbitration Act 1996, aligns itself with the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“NY Convention”) and is rarely applied by English Courts. It essentially provides a mechanism to refuse the enforcement of a foreign arbitral award on the grounds that it conflicts with certain rules of public policy. However, what was fascinating in this case was the manner in which the Court came into their opinion. Uniquely, when deciding the case, the court rejected the enforcement of a US arbitration award against a UK consumer by citing a violation of crucial provisions within the Consumer Rights Act 2015 (“CRA”) and the Financial Services and Markets Act 2000 (“FSMA”) as the basis of public policy. 

Some might agree with the court, thinking, “Breaking the law equals a breach of public policy." However, the way courts define public policy is more nuanced than just a straightforward connection between breaking a law and public policy—if that were the case, no arbitral award in existence could ever be enforced. When looking at Article V(2)(b) of the NY Convention in particular, we see that public policy is stipulated as “Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that…the recognition or enforcement of the award would be contrary to the public policy of that country.” [2] Essentially, the Article says that a state (through its courts) could refuse the recognition and enforcement of a foreign arbitral award that conflicts with its own understanding of public policy. 

This tricky issue of “its own understanding of public policy” often stirs debate among legal scholars, due to its implications that a court is given the full discretion to determine their facets of public policy. However, the clause explicitly states, “if the competent authority...finds...the award contrary to the public policy of that country,” implying a certain freedom of discretion for member state courts in defining public policy. However, as coined by Professor Ferrari, a renowned international arbitration professor from NYU, the interpretation of Article V(2)(b) must be construed narrowly to prevent an arbitrary denunciation of what is public policy. [3] Thereby indicating that States have the discretion to make determinations, but they must also come from the same ambit of definition. Without this caution, courts might refuse an award based on their own interests and interpretation. 

This problem arises because the NY Convention fails to provide clear rules on what exactly counts as a breach of public policy. However, looking at cases from different places can help us glean a general idea of how the international legal community defines public policy. Often, they are described grandly from “basic notions of morality and justice” to considering if enforcing the award would be really “shocking or harmful to the public.” [4] Moreover, some courts even focus on whether the award goes against what an “ordinary, reasonable, and well-informed person would find acceptable,” or if it breaks the state’s “most fundamental norms or mandatory rules.” [5] While for groups like the International Law Association, a group of international law scholars and jurists, the concept of public policy could also refer to breaches of procedural law, instead of just the substantives. [6] 

Past case laws, nevertheless, illustrate that an issue of substantive public policy may be involved in a dispute concerning a state’s sovereignty. For instance, an arbitral award compels a respondent to relinquish control over a specific area of its national waters for a certain period of time. As the sovereignty of the State is important to maintain a State’s political control, this can be one of the tenets of public policy.

Moreover, when an arbitral award is made under the conditions that a party is found to be coerced under the threat of imprisonment into signing an agreement or an arbitration clause, or when the underlying contract is tainted by corruption, public policy could impede this award for being enforceable, for reasons of fairness to the contract and to prevent a party from benefiting of an unfairly-made contract. [7] An example of the latter was found when the Courts at Kyrgyzstan failed to enforce an arbitral award in Valeri Belokon v. Kyrgyzstan at the 2014 Permanent Court of Arbitration Case. The Court found that the contract Valeri Belokon was engaged in was underlyingly concerning some illegal activities in money laundering. 

On the procedural front, instances under public policy objections also surface with regard to breaches of due process, particularly regarding the lack of impartiality. Additionally, instances where an award de facto excluded one arbitrator from the tribunal’s deliberations were deemed as procedural violations under the umbrella of public policy objections. [8] 

Therefore, it becomes increasingly fascinating to find that the English Courts arrived at an expansive approach that CRA and FSMA constitute part of the UK’s public policy concerns. In the aforementioned case, the dispute concerned Payward (a Crypto company) and Mr. Chechetkin (a lawyer operating in the UK). In 2020, Chechetkin made losses of up to £600,000 after making positions in Payward’s crypto platform, the Kraken. He attempted to recover his losses by claiming that Payward was not authorized to operate in the UK and that, as a consumer, he was entitled to remedies under the FSMA. 

Under Payward’s terms and conditions, however, which Chechetkin signed, this dispute must be resolved in the Judicial Arbitration and Mediation Services (“JAMS”) arbitration, seated in San Francisco. There, Chechetkin’s claims were dismissed as the arbitrator discounted using English Law and so no liability was deemed incurred from the FSMA. When Payward sought to enforce this arbitral award, the English Court refused to enforce the award after noticing that the arbitration failed to apply English Law properly, alleging that Chechetkin was not afforded the rights he deserved as a UK Consumer. [9]

From the outset, it shows that the court affirmed that both the CRA and the FSMA were integral to English public policy. The CRA, embodying, among other things, a European Union Directive on unfair terms in consumer contracts, became part of public policy through rulings by the Court of Justice of the European Union binding English courts signifying principles of consumer protection. [10] Similarly, the FSMA, a UK statute with regulatory goals, also constitutes a component of UK public policy. It shows that a case involving a private individual, no matter how limited they are in scale, could fall under an issue of public policy. Thus, this illustrates that businesses need to be wary of their strategies in having foreign arbitration and enforcing arbitral awards in foreign jurisdictions, as the enforcing state is more than capable of “re-assessing” the quality and method in rendering the award if they deem the arbitration as not protective of the consumer rights of their enforcing state. 

Works Cited:
[1] Payward v. Maxim Chechetkin, EWHC 1780 (Comm)., 2023. 
[2] Convention on the Recognition and Enforcement of Foreign Arbitral Awards,” opened for
signature 10 June 1958, United Nations Treaty Series no. 330,
https://treaties.un.org/doc/Treaties/1959/06/19590607%2009-35%20PM/Ch_XXII_01p.pdf. 
[3] NYU School of Law. “The Many Facets of ‘Public Policy’ in International Arbitration.” Youtube, 22 April 2022, https://www.youtube.com/watch?v=HVuCQgPrJkU. 39:49.
[4] Parsons & Whittemore Overseas v. Société Générale de L’Industrie du Papier (RAKTA), 508 F.2d 969 (U.S. 1974), New York Convention Guide, p. 240, https://newyorkconvention1958.org/index.php?lvl=notice_display&id=714.
[5] Moses, Margaret L., “Public Policy under the New York Convention: National, International, and Transnational.” In 60 Years of the New York Convention: Key Issues and Future
Challenges, edited by Katia Fach Gomez et al., Chapter 11, 179. Kluwer, 2019.
[6] International Law Association. “Resolution of the ILA on Public Policy as a Bar to Enforcement of International Arbitral Awards.” Arbitration International 19, no. 2 (June 2003): 213-215. https://academic.oup.com/arbitration/article/19/2/213/210498.
[7] World Duty Free v Kenya ICSID Case No. Arb/00/7; “Corruption in International
Arbitration.” Chartered Institute of Arbitrators, November 8, 2018.
[8] Kröll, Stefan. “Siemens Dutco Revisited: Balancing Party Autonomy and Equality of the Parties in the Appointment Process in Multiparty Cases.” Kluwer Arbitration Blog, October 15, 2010. https://arbitrationblog.kluwerarbitration.com/2010/10/15/siemens-dutco-revisited-balancing-party-autonomy-and-equality-of-the-parties-in-the-appointment-process-in-multiparty-cases/.
[9] Sanitt, Adam. “Court refuses to enforce foreign arbitration award against cryptocurrency exchange user.” Inside Disputes Blog, Norton Rose Fulbright, September 29, 2023. https://www.nortonrosefulbright.com/en/inside-disputes/blog/202309-court-refuses-to-enforce-foreign-arbitration-award-against-cryptocurrency-exchange-user. 
[10] Sanitt, Adam. “Court refuses to enforce foreign arbitration award against cryptocurrency exchange user.” Inside Disputes Blog, Norton Rose Fulbright, September 29, 2023. https://www.nortonrosefulbright.com/en/inside-disputes/blog/202309-court-refuses-to-enforce-foreign-arbitration-award-against-cryptocurrency-exchange-user. 

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