Soleymani v Nifty. The Court of Appeal does not convince on Brussels Ia’s arbitration exception (as applied to consumers) yet does lift a stay to allow scope of consumer rights under English law to be litigated in the UK.

Soleymani v Nifty Gateway LLC [2022] EWCA Civ 1297 is the appeal against [2022] EWHC 773 (Comm) which I reviewed here. That post will give readers the necessary background. The Court of Appeal partially overturned. The judge had issued a stay of English proceedings under s9 Arbitration Act 1996, effectively allowing a US arbitrator to decide the validity of the arbitration agreement. That stay has now been lifted and E&W proceedings on that issue will go ahead.

Of note is that the discussion takes place under retained EU law, with the relevant provisions in ia s15b of the Civil Jurisdiction and Judgments Act 1982 (as amended) mirroring the consumer section of Brussels Ia and Directive 93/13 on unfair terms in consumer contracts, as amended.

A first ground of appeal concerned the core of the Brussels Ia issue: whether the Court had jurisdiction under s. 15B CJJA because the exception for arbitration under Article 1(2)(d) of the Recast Regulation did not apply to the Arbitration Claim. In other words whether the exclusion for arbitration is engaged when a consumer, ordinarily protected by the forum actoris provisions in A17 ff BIa, calls upon that protection to seize a UK court.

The first instance judge held that the principal focus and subject matter of Mr Soleymani’s claim is whether he is legally obliged to arbitrate, hence engaging the arbitration exception. The Court of Appeal agrees for largely the same reasons as the judge, and with Popplewell J [89] indicating no change in his views following CJEU Prestige. The CA’s own finding in [2021] EWCA Civ 1589 The Prestige is recalled:  “the question is whether a principal focus of the proceedings is arbitration, the essential subject matter of the claim concerns arbitration, or the relief sought can be said to be ancillary to the arbitration process, these being alternative ways of expressing the same idea”.

The Court of Appeal’s focus seems to be on avoiding abuse by the consumer, who could circumvent the arbitration exception by bringing his claim within the scope of BIa hence characterising it as a claim to enforce his consumer rights.

I continue to find the alternative more convincing: that the consumer section could be easily circumvented, particularly by non-EU based traders and /or in the event of arbitration outside the EU, simply by inserting an ADR clause in the contract, depriving the consumer of the forum actoris. Claimant’s counsel’s nine reasons [51] in my view have convincing appeal, and not Popplewell J’s suggestion [93] ff that in practice the consumer would be protected anyways, either by the ability to sue in the UK and have the ADR clause declared void under consumer protection law, or by the ability to have any foreign award declared unenforceable under the New York Convention’s ordre public exception. The very case at hand show the real difficulties (and costs) the consumer will be put through if and when the business party to the transaction decides to pursue the arbitration proceedings abroad.

The second ground of appeal was dismissed for it relied on s. 15D(1) being construed as invalidating the arbitration clause, which the Court had already held it did not, however ground 3 was accepted, for reasons formulated by Birss LJ.

Mr Soleymani’s claim consisted of claims for three distinct declarations: (i) a declaration that the arbitration clause was unfair and not binding, (ii) a declaration that the governing law clause was unfair and not binding, and (iii) a declaration that the contract formed in the auction was illegal under the Gambling Act 2005.

The jurisdiction issues under Grounds 1 and 2 of the appeal relate only to the first of these three, the arbitration clause claim. The judge as discussed decided that the Arbitration Claim was within the arbitration exception which now forms part of the CJJA (and had its origin in the Brussels Convention and the later Recast Regulation), and the appeal from that decision was dismissed.

The judge however also decided that the other two claims, that is the Governing Law Claim and the Gambling Act Claim were not clearly within the arbitration exception, yet she stayed the E&W proceedings to give way to the arbitration in New York. Therefore these claims were at least capable of falling within the jurisdiction gateway provided for in s15B(2)(b) CJJA 1982.  Ground 3 argued that the first instance judge erred in staying these proceedings under section 9 of the arbitration Act without determining the fairness question or directing a trial before the English Court on the issues raised by that objection.

That ground was upheld for three reasons [151] ff which all go towards limits to Kompetenz Kompetenz in consumer (and other?) cases.

Firstly, the public importance of decisions vindicating (or not) consumers’ rights. The case Mr Soleymani is seeking to make has implications for  consumers in general in this jurisdiction and it is important that they are considered and ruled upon in public in a court. Therefore it was held the s9(4) issues should be decided at a trial and not left to be decided in the arbitral tribunal.

Further [152] the consumer protection rights under UK law involve domestic concepts which UK court are far better placed to adjudicate upon than a New York arbitrator. Even if it were certain that the New York Tribunal would apply UK law (a late proffered undertaking to do so was made and discussed [155] ff), it engages principles which are the subject matter of our domestic jurisprudence, not simply some general notion of fairness.

Thirdly whether the arbitration agreement does in fact operate unfairly on Mr Soleymani is not suited to summary determination. “If the invalidity argument is good, the very reasons which make it good, namely that it places an unfair burden on Mr Soleymani, weigh against allowing the tribunal to decide the issue under its Kompetenz-Kompetenz jurisdiction. The Judge’s finding that there would be nothing unfair about leaving it to the arbitrator to decide that issue is inconsistent with her recognition that there was a triable issue whether this was an unfair arbitration agreement.”

Geert.

EU Private International Law, 3rd ed. 2021, Heading 2.2.3.2, and 2.2.9.2.

Inghams v Hannigan.Complex ADR arrangements land parties into a right litigation pickle.

A quick note on (thank you, Michael Douglas, for flagging) [2020] NSWCA 82 Inghams v Hannigan, in which the New South Wales Court of Appeal had to untangle a messy alternative dispute resolution (ADR) clause in a contract. I have actually included ‘messy’ as a tag for this post.

The Headnote to the judgment summarises the contractual clauses that needed proper construction. The case is a good illustration of how ADR clauses can lead parties straight into a right pickle, when different obligations to make recourse to mediation and /or (in this case: either /and /or) arbitration and indeed ultimately litigation in the courts at ordinary apply to separate parts of the contract. It forces parties to consider what part of the contract they actually have issue with and for the courts to try and untangle what ADR obligations follow.

A definite case of less can be more and of fancy ADR clauses not always giving wings to contractual interpretation. (The case concerns supplies of chickens. Bad pun. It’s a Saturday morning. I shall keep schtum for the rest of the day).

Geert.

 

Bitcoin online resolution award refused recognition and enforcement at Amsterdam (ordre public exception of New York Convention).

I tweeted it earlier yet was asked to put a review up on the blog (which also suits my archiving purposes) of ECLI:NL:GHAMS:2019:192 X v Y (I know that does not help much) at the Amsterdam Court of Appeal, 29 January 2019. The case came to me courtesy of Freshields who have review here.

The case illustrates some of the issues involving online alternative dispute resolution, including those manned by artificial intelligence (albeit the latter was not directly at stake here).

Using an online trading platform, X provided three loans to Y, all in bitcoins at an interest rate of 5% per month. To borrow these bitcoins, Y had to agree on the conditions of the online bitcoin-trading platform applicable to the loans. These conditions included the following dispute resolution mechanism clause:

If you fail to pay principal and/or interest on the date on which the loan falls due, you will be considered in default of the Registration Agreement… Should your loan become 90 days past due (“Defaulted”) the loan will be sent to Dhami Law Firm (“Arbitrator”), an independent, international arbitration firm whose awards are recognized internationally under The United Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

I understand that in the event that I want to appear in the arbitration by email to contest the potential issuance of an award in favor of the lenders, I must send a written request to support@btcjam.com and pay a $ 99.00 fee. Such request must be within 7 calendar days from the date of the Notice of Default. The Arbitrator’s decision shall be final and legally binding. In the event that the Arbitrator issues an award in favor of the investor, an investor may enforce that judgment in a court of competent jurisdiction.

The conditions further contained the following arbitration clause:

All claims and disputes arising under or relating to this agreement are to be settled by binding arbitration in the state of California or another location mutually agreeable to the parties. An award of arbitration may be confirmed in a court of competent jurisdiction.

Default ensued, as did ADR, and Y sought enforcement in The Netherlands. The Courts have now refused proprio motu (Y had signalled he had no objection), for the following reasons summarised by Freshfields: First, the court took issue with the circumstance that – in its view – online arbitral proceedings automatically become pending after 90 days. Second, a defendant wishing to defend itself in these arbitral proceedings had been required to write an email within seven days from receiving a notice of default. Third, the arbitral tribunal had failed to inform Y that a dispute was pending against him or of the legal grounds of the action.

At 3.5 is it is clear that the principle of audi alteram partem is the main stumbling block for the Dutch Courts. Ordre public violated. A clear flashpoint for ADR, including of the algorithmic variety.

Geert.

 

 

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