MSTR Cat

Crypto Law/Level IX · Death, divorce and disputes/9.3 Going to court/Lesson 2

Arbitration clauses in exchange terms

Why many crypto platform disputes go to a private arbitrator instead of a court, the federal law that enforces those clauses, and the limits courts in the US, UK and EU have placed on them.

Education, not legal, tax or investment advice. Crypto law differs between countries and states and changes often. Check the current rules where you live with a qualified lawyer or tax adviser before you act.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Read the clause for a free exit: many agreements allow opting out of arbitration within a stated period, or keep a small-claims carve-out; the opt-out must follow the clause’s method and deadline exactly.
  2. Under consumer arbitration rules such as the AAA’s, the consumer pays only a capped filing fee and the business pays arbitrator compensation; the Concepcion class waiver usually still applies.
  3. Mass arbitration lets many customers file similar individual claims whose fees the business usually pays; courts police one-sided designs, as in Heckman v. Live Nation (9th Cir. 2024), under general contract law.
  4. UK consumers: an arbitration clause is unfair for money claims up to £5,000 under Arbitration Act 1996 section 91, so use the county court; claims up to £10,000 normally go to the small claims track, with online fees from £35.
  5. EU consumers can challenge clauses forcing disputes exclusively to arbitration under the Unfair Contract Terms Directive annex; national courts decide, so the result depends on the member state.

MaterialsThe dispute-resolution section of an exchange user agreement you have acceptedSection 2 of the Federal Arbitration Act (9 U.S.C. 2)AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)Payward, Inc v Chechetkin [2023] EWHC 1780 (Comm)

Wonder

  1. If I clicked ‘I agree’, have I given up the right to sue in court?
  2. Can an exchange stop its customers from joining a class action?
  3. Does an arbitration clause written under US law bind a customer in the UK or EU?

Explore

  1. Arbitration is a private trial: a neutral arbitrator, appointed under the rules of a provider such as the American Arbitration Association (AAA) or JAMS, hears the dispute and makes a binding award. Hearings are usually confidential and grounds for appeal are narrow. Many exchange user agreements require it. The terms in one English case read: ‘ARBITRATION PREVENTS YOU FROM SUING IN COURT OR FROM HAVING A JURY TRIAL’, and required arbitration in San Francisco under JAMS rules and California law. Lesson 5.3.6 covers how online terms are formed and accepted; this lesson covers what an arbitration clause does once it is part of the contract.
  2. In the United States, section 2 of the Federal Arbitration Act makes a written arbitration provision in a contract involving commerce ‘valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract’. The closing words matter. General contract defences, such as fraud or unconscionability, meaning terms so one-sided and unfairly imposed that a court will not enforce them, can still defeat a clause. What a state may not do is apply a rule that disfavours arbitration or stands as an obstacle to the Act’s purposes. Courts therefore ask whether a defence is general or aimed at arbitration.
  3. That is why class-action waivers inside arbitration clauses usually survive. In AT&T Mobility LLC v. Concepcion, decided on 27 April 2011, the Supreme Court held that the Act pre-empts California’s Discover Bank rule, which had treated many consumer class waivers as unconscionable. A customer bound by such a clause generally must bring an individual claim rather than join a class action (lesson 9.3.3). A federal rule that would have restricted class waivers in many consumer financial contracts never took effect: Congress disapproved it under the Congressional Review Act, signed into law on 1 November 2017. The Coinbase cases of 2023 and 2024 decided procedure, not this point (lesson 5.3.6).
  4. Customers have answered with mass arbitration: large numbers of similar individual claims filed together, each carrying fees that the business usually pays. Providers have revised their rules in response; the AAA updated its Mass Arbitration Supplementary Rules and fee schedule on 15 January 2024. Courts still police one-sided designs. In Heckman v. Live Nation Entertainment, decided on 28 October 2024, the Ninth Circuit affirmed a refusal to enforce Ticketmaster’s arbitration agreement, which used a new provider’s mass-arbitration rules, holding it unconscionable under California law. The case did not involve crypto, but the same contract test applies to any platform’s terms.
  5. England and Wales protect consumers more directly. Section 91 of the Arbitration Act 1996, with an order made in 1999 setting the amount at £5,000, makes an arbitration agreement unfair against a consumer for a money claim not exceeding that sum. In Payward, Inc v Chechetkin, decided on 14 July 2023, Mr Justice Bright refused to enforce a JAMS award made in San Francisco against a UK customer of the Kraken exchange. He found the customer was a consumer, and held enforcement contrary to UK public policy because the arbitrator had applied only California law and would not consider his claims under English consumer and financial-services law.
  6. In the European Union, the annex to the Unfair Contract Terms Directive (93/13/EEC) lists, as a term that may be unfair, one requiring a consumer ‘to take disputes exclusively to arbitration not covered by legal provisions’; national law and courts apply that test. So the same clause can be enforced in one country and set aside in another. A practical check: find the arbitration clause in your exchange’s terms and note the provider and its rules, the seat (the city whose law governs the arbitration), the governing law, any class waiver, any small-claims carve-out, any time-limited opt-out, and which company in the group you actually contracted with.

Key facts

  • Section 2 of the Federal Arbitration Act makes written arbitration provisions ‘valid, irrevocable, and enforceable’, subject to general contract defences.
  • In AT&T Mobility LLC v. Concepcion (2011) the Supreme Court held that the Act pre-empts California’s Discover Bank rule against consumer class waivers.
  • Congress disapproved a federal consumer-finance arbitration rule under the Congressional Review Act in a resolution signed on 1 November 2017 (Public Law 115-74).
  • In Heckman v. Live Nation Entertainment (9th Cir. 2024) a consumer arbitration agreement using a new provider’s mass-arbitration rules was held unconscionable.
  • Section 91 of the UK Arbitration Act 1996 and a 1999 order make an arbitration agreement unfair against a consumer for money claims up to £5,000.
  • In Payward, Inc v Chechetkin (2023) the English High Court refused, on public-policy grounds, to enforce a US arbitration award against a UK consumer of a crypto exchange.

Exercise nine, six, three, one

9CollectList up to 9 features of the dispute clause in a crypto platform’s terms you have accepted, such as the provider, seat, governing law, class waiver, opt-out or carve-outs (some lists are shorter).
6ClusterSort them into 6 groups: where disputes are heard, which law applies, who pays fees, group or class limits, exceptions and carve-outs, and deadlines or opt-outs.
3DistillReduce the 6 groups to 3: features that limit your options, features that protect you, and features whose effect depends on where you live.
1CrystallizeWrite 1 sentence explaining why the same arbitration clause can be enforced in one country and refused in another.

Fact check

Dates, figures and claims checked against the published sources listed below.

Open in the interactive academy →

PT ES ZH JA KO RU DE FR MS